America’s entrepreneurs are resilient. They’ve endured inflationary headwinds, persistent labor shortages, tighter capital conditions and new regulatory burdens. Yet business owners and their teams have continued to find paths and use new technologies to innovate and anchor local economies in every corner of our nation. Now, with favorable tax and regulatory policies being delivered by President Trump and Congress, entrepreneurial innovation has the potential to be unleashed in unimaginable ways.
With his signing of the One Big Beautiful Bill, President Trump has delivered significant tax relief and certainty that will help to fuel entrepreneurship and small business growth. However, an insidious barrier continues to undermine the entrepreneurial spirit, and it needs to be fixed: tax enforcement uncertainty.
When small business owners don’t know what to expect from the Internal Revenue Service (IRS) – when audits seem arbitrary, for example, or penalties unduly punitive, and rules change without warning – they respond the only way they can: by pulling back. They refrain from using capital to expand, which means they don’t hire new employees or purchase new equipment. Many actually fear using the very tax credits designed to support investment.
That’s not how you build a golden age of American entrepreneurship and economic growth.
A new study commissioned by the Small Business & Entrepreneurship Council through Oxford Economics takes a deep dive into how tax enforcement uncertainty is affecting our economy. The findings are as eye-opening as they are actionable.
The report, based on a survey of 1,000 business owners and leaders across industries and company sizes, confirms that IRS unpredictability is weighing heavily on investment, job creation, and small business competitiveness. When asked how reducing this uncertainty would affect their operations, business owners said it would unleash billions in new investment and lead to millions of new jobs.
For example, according to the study, reducing enforcement uncertainty would boost private sector investment by nearly $120 billion a year and business revenues could rise by $1.4 trillion. Compliance costs - which disproportionately weigh on small firms - would drop by nearly $9 billion. Small business owners, in particular, say this uncertainty hurts their ability to compete with larger firms that can afford expensive legal teams and tax advisers.
The impact is staggering. But the real story isn’t just the statistics, it’s the effect on the decisions made by entrepreneurs and how these squash their dreams of building a great business.
A tech startup in Texas puts off hiring two new engineers because its founders are bracing for a potential audit. A young manufacturing entrepreneur in Ohio chooses not to claim the R&D tax credit she qualifies for because she’s unsure how the IRS will interpret the rules. A construction firm in Florida keeps a six-figure reserve on hand to cover unexpected tax penalties rather than using that money to purchase new equipment.
These aren't anomalies. They're rational responses to a system that often acts unclear and unforgiving. One signaling a “gotcha culture” that targets certain businesses or business activity.
Fortunately, the Trump Administration has made U.S. investment and small business growth a cornerstone of its economic agenda. It recognizes that unlocking American dynamism means supporting the very people who build, risk, and employ - our entrepreneurs. Bringing fairness and clarity to tax enforcement aligns perfectly with this vision.
Again, uncertainty is the enemy of investment. If we want businesses to expand, hire, and take risks, we must give them a tax environment that is predictable, consistent, and easy to navigate. That means clearer guidance from the IRS, consistent and fair application of enforcement policies, and a re-evaluation of strict liability penalties that punish even those acting in good faith. These concerns weigh heavily on business owners’ decisions to invest, according to the study.
The Administration can help to relieve the uncertainty in several ways. It can ensure that tax incentives - like the R&D credit or other expensing provisions - actually work as intended. Today, over one-third of small firms forgo these benefits out of fear, according to the study. That's not just a missed opportunity for those businesses; it's a missed opportunity for America’s economy. The Administration can begin to rectify this problem right now: Immediate R&D expensing has been restored as part of the One Big Beautiful Bill, and there’s retroactive relief for small businesses from previous years, but clear IRS guidance is needed right now.
Moreover, the IRS can support compliance fairness and certainty for business partnerships by revoking Revenue Ruling 2024-14 – a Biden-era initiative that broadly expands IRS’s authority to use the economic substance doctrine. The ruling is at odds with other parts of the tax code and long accepted practices, which has created significant uncertainty.
Let’s give entrepreneurs the certainty they deserve. Tax enforcement must be fair and predictable. Pairing balanced and fair enforcement with President Trump’s historical tax relief will produce a new era of American entrepreneurship and small business growth, which is essential to creating the “golden era of growth” being pursued by President Trump.
Karen Kerrigan is President & CEO of the Small Business & Entrepreneurship Council (SBE Council), a nonprofit advocacy, research and education organization dedicated to promoting entrepreneurship and protecting small business.
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