ERC Backlog, Taxpayer Assistance and Service Act, and Federal Funding Freeze
Probity Tax Recovery is a tax consulting firm specializing in tax credits and incentives for small to mid-sized businesses. We work with business owners and their CPAs to identify tax credits and incentives while saving them time and money. As of November 1, 2024, Probity began operating as a division of MS Consultants. Read more about the exciting news here.
Tax Policy/News:
February 3: IRS Urges Taxpayers to Choose Tax Preparers Carefully to Protect Their Personal Information
The IRS is reminding taxpayers to be cautious when selecting tax preparers to avoid fraud, identity theft, and financial harm. While most preparers are reputable, some engage in unethical practices such as filing false returns or charging excessive fees.
The IRS warns against “ghost” preparers who refuse to sign tax returns, a potential sign of fraud. Taxpayers should verify preparers’ credentials, discuss fees upfront, and avoid signing incomplete returns.
The IRS provides resources, including a directory of qualified tax preparers and free tax filing assistance for eligible individuals. Suspicious tax preparers can be reported to the IRS using Form 14157.
With tax season underway, the IRS emphasizes that taxpayers remain legally responsible for their returns, even when using a professional.
February 3: IRS Push to Tackle Covid-Era Claim Backlog Threatened by Lawsuit
The IRS's efforts to address a significant backlog of Employee Retention Credit (ERC) claims are facing challenges due to a lawsuit targeting its automated processing system.
Th agency has been grappling with a backlog of approximately 1.4 million ERC claims, many of which have been delayed due to concerns over fraudulent submissions. Recently, the IRS implemented an automated system to expedite the processing of these claims. However, a recent lawsuit alleges that this system may not adequately address the complexities of individual claims, potentially leading to improper denials or approvals.
This legislation threatens to further delay the processing of ERC claims, leaving many businesses uncertain about the status of their refunds. The IRS acknowledged the backlog and is seeking solutions to balance efficient processing with thorough fraud prevention measures.
February 3: Elon Musk Creates Confusion About IRS’ Direct File — But the Free Tax Program Is Still Available
Elon Musk’s social media post claiming he had "deleted" 18F, a federal technology agency involved in IRS projects like Direct File, led to confusion over the program’s status.
Despite his remarks, the free tax filing system remains operational for the 2025 tax season. While 18F’s social media presence was removed, its website and the Direct File system are still active. Direct File, launched as a pilot in 2024 and now available in 25 states, allows taxpayers with simple returns to file directly with the IRS.
Treasury Secretary Scott Bessent confirmed the program’s continuation during his confirmation hearing. Direct File has faced opposition from private tax preparation companies, but the IRS has committed to its expansion. Musk’s comments fueled speculation, but no official actions have been taken to eliminate the program.
January 30: To Pay for Trump Tax Cuts, House GOP Floats Plan to Slash Benefits for the Poor and Working Class
House Republicans are considering cuts to Medicaid, child tax credits, and single-parent tax benefits to offset the cost of new tax cuts, including corporate tax reductions and the elimination of the federal estate tax.
The proposals, outlined in a GOP policy document, would lower the corporate tax rate from 21% to 15% and remove the estate tax, which applies to estates worth over $14 million.
To balance the budget, lawmakers are weighing reductions in Medicaid funding to states, eliminating the $2,100 child tax credit, and ending the "head of household" tax filing status, which benefits single parents. The document also suggests ending income taxes on tips and overtime pay, initiatives Trump campaigned on.
Critics argue the proposals overwhelmingly benefit the wealthy at the expense of working-class Americans, while supporters contend they align with Trump’s economic agenda. The final tax plan remains under negotiation in Congress.
January 30: Senate Finance Committee Releases Discussion Draft of “Taxpayer Assistance and Service Act”
Senate Finance Committee Chairman Mike Crapo and Ranking Member Ron Wyden have released a discussion draft of the Taxpayer Assistance and Service (TAS) Act, a proposed bill aimed at improving IRS administration and taxpayer rights.
The 163-page draft includes 68 provisions, many based on National Taxpayer Advocate recommendations, and seeks to enhance customer service, streamline tax dispute resolution, and strengthen the independence of the Taxpayer Advocate’s Office.
Key measures include setting minimum standards for tax return preparers, improving IRS appeals processes, and providing relief for small businesses and Americans living abroad. The bill remains in draft form as lawmakers solicit public input before finalizing the proposal.
If enacted, it would rank among the most significant taxpayer rights legislation in decades, following the IRS Restructuring and Reform Act of 1998 and the Taxpayer First Act of 2019. The legislative process remains in its early stages, requiring approval from both the Senate and House before becoming law.
January 29: IRS Removes Sections of Internal Revenue Manual From Public View
The IRS has removed multiple sections of its Internal Revenue Manual (IRM) from public view, citing a review prompted by President Donald Trump’s executive order eliminating diversity, equity, and inclusion (DEI) programs.
The IRM, which outlines IRS policies and procedures, is a key resource for tax professionals and taxpayers. Notable missing sections include guidance on taxpayer assistance orders, offers in compromise, and identity theft procedures.
Tax experts warn that the removals hinder transparency and could affect taxpayers’ ability to navigate IRS processes. Critics also point out that the IRS deleted a section referencing the Freedom of Information Act (FOIA), which mandates public access to administrative manuals.
The IRS has stated that the removed content may return after review, but tax advocates remain concerned about the impact on taxpayer rights and access to critical information.
January 23: Seven Individuals Charged in Largest Employee Retention Credit Scheme Case in the United States
Federal authorities have charged seven individuals in a $44 million fraud scheme involving the Employee Retention Credit (ERC), a COVID-19 relief program.
The defendants allegedly submitted over 8,000 fraudulent tax returns seeking more than $600 million in pandemic relief funds, primarily through a sham credit repair business called “Credit Reset.”
Prosecutors say the group used shell companies to claim tax credits meant for struggling businesses, spending the stolen funds on luxury goods, high-end vehicles, and designer items. One defendant, an aspiring rapper, even boasted about the scheme in a song.
The accused face multiple charges, including conspiracy, wire fraud, and assisting in the preparation of false tax returns, carrying potential prison sentences of up to 20 years. The case is being prosecuted by the Eastern District of New York and the Department of Justice’s Tax Division, with the IRS Criminal Investigation unit leading the investigation.
Economic News/Policy:
February 3: Trump Agrees to Pause Tariffs on Canada and Mexico After Border Enforcement Pledges
President Donald Trump has agreed to a 30-day pause on tariffs against Canada and Mexico after both countries pledged to enhance border security and combat drug trafficking.
The agreement follows a tense period of economic uncertainty, with fears of a trade war disrupting markets and raising consumer prices. Canadian Prime Minister Justin Trudeau announced plans to name a fentanyl czar and target cartel operations, while Mexican President Claudia Sheinbaum committed to deploying 10,000 National Guard troops to the border.
Despite the pause, Trump’s 10% tariff on Chinese imports remains scheduled to take effect. Analysts warn the global economy remains in flux, as Trump has hinted at additional tariffs on European goods. While financial markets reacted with cautious optimism, businesses continue to brace for potential disruptions.
The negotiations will be led by Secretary of State Marco Rubio, Treasury Secretary Scott Bessent, and Commerce Secretary nominee Howard Lutnick.
February 3: In a Switch, Trump Approves of the Fed's Decision to Hold Interest Rates Steady
President Donald Trump has expressed support for the Federal Reserve’s decision to keep interest rates unchanged, a reversal from his earlier calls for immediate cuts.
The Fed maintained its key borrowing rate between 4.25% and 4.5%, a move Trump described as “the right thing to do.” This contrasts with his remarks at the World Economic Forum in January, where he demanded rate cuts.
While Trump has no direct authority over the Fed, he nominated current Chair Jerome Powell, whom he has frequently criticized.
Markets do not anticipate rate reductions before June, with Powell emphasizing patience following last year’s rate cuts. The Fed’s policy path is further complicated by Trump’s newly announced tariffs on Canada, Mexico, and China, which economists warn could push inflation higher. The central bank now faces a balancing act between inflation risks and economic growth.
February 1: Elon Musk’s DOGE Commission Gains Access to Sensitive Treasury Payment Systems: AP Sources
The Department of Government Efficiency (DOGE), a Trump administration task force led by Elon Musk, has gained access to sensitive Treasury payment systems, including those for Social Security and Medicare, according to sources familiar with the matter.
The move has sparked concerns among lawmakers, with Senate Finance Committee Democrat Ron Wyden warning that the group could interfere with critical federal payments.
Treasury’s acting Deputy Secretary David Lebryk resigned after more than 30 years of service, reportedly following DOGE’s request for access to financial data. Musk defended the move on social media, alleging that Treasury payment officers never denied transactions, including those to fraudulent or terrorist groups, though he provided no evidence.
DOGE was created to streamline government operations, cut regulations, and reduce federal workforce costs, but critics fear its unchecked influence could disrupt essential public services.
January 28: Judge Blocks Trump Federal Funding Freeze on Public Loans, Grants, and More
A federal judge has issued a stay against a White House directive ordering a freeze on federal assistance, temporarily halting its enforcement while legal arguments proceed.
The directive, issued by the Office of Management and Budget (OMB), aimed to review compliance with President Trump’s executive orders targeting DEI policies, gender-related programs, and environmental initiatives.
The freeze, which could impact funding for nonprofits, universities, small businesses, and state and local governments, sent organizations scrambling to assess the potential consequences.
The White House called the move a “temporary pause,” excluding Social Security and Medicare, though Medicaid portals experienced disruptions. Critics, including Senate Minority Leader Chuck Schumer, condemned the freeze as “dangerous” and legally dubious, with legal challenges already underway.
A coalition of nonprofits and Democratic attorneys general from 23 states have filed lawsuits, arguing the freeze violates the Impoundment Control Act. The court’s stay pauses the order until at least Monday as litigation continues, while agencies and lawmakers seek clarity on its scope and implications.
Technology:
January 27: How DeepSeek’s Efficient AI Could Stall the Nuclear Renaissance
Chinese AI startup DeepSeek has unveiled its R1 model, which rivals leading AI systems from Google and OpenAI while utilizing significantly fewer computational resources.
This breakthrough challenges the prevailing belief that advanced AI development necessitates substantial hardware investments, potentially altering future data center energy demands. DeepSeek claims to have trained a previous model using only 2,048 Nvidia H800 GPUs over two months, a fraction of the resources typically employed by competitors.
This efficiency has led to a 16% decline in Nvidia's stock value, reflecting concerns about reduced demand for high-end GPUs. The implications extend to energy sectors, particularly companies investing in new nuclear and natural gas capacities to meet anticipated AI-driven power consumption.
With data centers projected to consume up to 12% of U.S. electricity by 2027, tech giants like Google, Amazon, and Microsoft have been investing heavily in securing power supplies, including nuclear energy. However, DeepSeek's advancements suggest that AI's power requirements may have been overestimated, potentially diminishing the urgency for such investments.
This development could shift focus toward more cost-effective and rapidly deployable renewable energy sources, as the tech industry reassesses its future power needs in light of more efficient AI technologies.
Energy and Environmental Policy/News:
January 30: California Cities Launch Nation’s First Public Hydrogen Utility
The cities of Lancaster and Industry, California, have created First Public Hydrogen (FPH2), the nation's first public hydrogen utility, to accelerate clean hydrogen adoption.
The utility, which began selecting hydrogen suppliers in January, aims to secure 20,000 tons of clean hydrogen by July and begin deliveries by late 2025 or early 2026. While the federal 45V hydrogen tax credit played a key role in its launch, FPH2 intends to operate independently of long-term reliance on incentives.
The utility will act as an intermediary between suppliers and consumers—including municipalities, transit agencies, and logistics firms—while working with private industry to develop storage and distribution infrastructure. Supporters say the public model will increase transparency and accountability while mitigating adoption risks.
Despite concerns that strict emissions standards could slow hydrogen growth, FPH2 remains committed to stringent environmental guidelines. The utility plans to issue its first request for proposals from suppliers before the end of the first quarter.
January 30: Trump’s Executive Orders Cause Hesitation, Confusion for Clean Energy Developers
President Donald Trump’s recent executive orders have created uncertainty for the clean energy sector, including a six-month pause on offshore wind development, a freeze on certain Inflation Reduction Act and Bipartisan Infrastructure Law funds, and a temporary halt on federal grants and loans.
Developers and advocacy groups are struggling to interpret shifting guidance, as clarifications from the Office of Management and Budget have provided limited clarity.
The offshore wind pause puts billions of dollars in investment and jobs at risk, particularly for projects in the permitting phase. Concerns are also mounting in regions like Appalachia, where grid reliability projects tied to federal funding could be impacted.
While renewable energy tax credits appear unaffected, experts advise developers to reassess financing plans in case grants or loans are rescinded. The administration is conducting a broader review of clean energy programs, leaving industry stakeholders in limbo as they await further policy direction.
For Fun:
January 31: Why It Feels Good to Scratch That Itch: The Immune Benefits of Scratching
A new study in Science reveals that scratching an itch activates an immune response that helps protect against infections.
Researchers found that scratching triggers the release of substance P, a neurochemical that activates mast cells, which in turn recruit neutrophils to the site, increasing inflammation.
Experiments in mice showed that scratching reduces the presence of harmful bacteria like Staphylococcus aureus on the skin, suggesting a potential evolutionary benefit. However, chronic scratching can cause skin damage and worsen conditions like eczema.
The study also identified separate nerve pathways for itch signaling and inflammation, raising the possibility of future treatments that could block itching without compromising immune function. Scientists hope these findings will lead to better therapies for chronic itch-related conditions.
January 30: Fossil Hunter Discovers 66-Million-Year-Old Vomit in Denmark, Offering a Clue to the Cretaceous Food Chain
A fossil hunter in Denmark has discovered a 66-million-year-old fossilized regurgitation, providing new insights into the Cretaceous marine food chain.
The find, named Danekræ DK-1295, contains fragments of sea lilies—marine animals related to sea stars—encased in chalk, suggesting they were expelled by a predator before reaching its stomach.
Scientists believe the culprit was a bottom-dwelling shark with crushing teeth, similar to today’s Port Jackson shark. The discovery, made at Stevns Klint, a UNESCO World Heritage Site, offers rare evidence of prehistoric feeding behaviors. Experts highlight that such fossils, known as regurgitalites, help reconstruct ancient ecosystems.
This fossil has been designated as "Danekræ," a classification for significant Danish natural history finds, and will be preserved in a museum. While notable, this isn’t the oldest known regurgitalite—160-million-year-old ichthyosaur vomit discovered in England holds that record.