Improper Employee Retention Credit Claims, Tax Cuts and Jobs Act, and AI Scaling Laws
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Tax Policy/News:
November 25: IRS extends R&D tax credit transition period
The IRS has extended the transition period for revising claims for the research and development (R&D) tax credit through Jan. 10, 2026, allowing taxpayers 45 days to "perfect" claims before the IRS makes a final determination.
Initially introduced in 2021 to curb dubious claims, the rules required detailed documentation of research activities, qualified expenses, and business components.
Amid complaints, the IRS eased some requirements in June 2024, simplifying reporting for claims submitted after June 18.
Taxpayers must now identify business components, research activities, and total qualified expenses using Form 6765. This marks the third extension, following a previous deadline of Jan. 10, 2025.
November 25: IRS plans National Tax Security Awareness Week
The IRS and its Security Summit partners will host the 9th annual National Tax Security Awareness Week from Dec. 2–6 to combat identity theft and raise cybersecurity awareness during the holiday shopping and tax filing seasons.
Daily press releases, social media campaigns, educational materials, and local outreach events will inform taxpayers and tax professionals on safeguarding sensitive information against evolving scams and schemes.
IRS Commissioner Danny Werfel emphasized the importance of vigilance, as identity thieves increasingly exploit fake emails, texts, and social media to steal personal and financial data for fraudulent tax filings.
The event will also feature efforts by the Coalition Against Scam and Scheme Threats to address misleading online tax advice and protect taxpayers from fraud.
The IRS is urging businesses to address improper Employee Retention Credit (ERC) claims before the second Voluntary Disclosure Program’s deadline on November 22, which offers businesses the chance to repay incorrect claims, minus 15%, generally without penalties or interest, while payroll companies and other third-party payers now have an extended deadline until December 31, 2024, to use the consolidated claim process.
Many businesses were misled by aggressive promoters into filing ineligible ERC claims, with IRS Commissioner Danny Werfel stressing the importance of reexamining claims and consulting trusted tax professionals to avoid future penalties.
Programs such as the Claim Withdrawal Program remain open for businesses with pending claims, allowing them to withdraw claims that haven’t yet been processed without penalties or interest, and third-party payers can withdraw claims on behalf of their clients while retaining valid ones.
Businesses unable to fully repay their ERC liabilities by the deadline can still apply for installment agreements, though penalties and interest may apply from the date of the program’s closing agreement.
The IRS continues to process valid ERC claims while safeguarding against fraudulent submissions and warns that compliance actions will escalate for incorrect claims after the programs end. Additional resources are available, including FAQs on eligibility and withdrawal processes, guidance on identifying fraudulent claims, and reporting tools for suspected abusive tax promotions.
Economic News/Policy:
November 26: Manufacturing Leads Other Sectors in Small Business Financial Measures
Manufacturing emerged as the top-performing industry in Biz2Credit’s 2024 Top Small Business Industries Study, leading in average revenue ($1,211,760), credit scores (676), and business longevity (8.8 years), bolstered by economic stability and incentives from laws like the CHIPS Act and the Infrastructure Act.
Other standout sectors include Healthcare & Social Assistance, with the highest funding approval rate (46%), Retail Trade, which accounted for the largest funding volume (20%), and Information Technology (IT), which secured the highest average funding amount ($98,311).
Data from over 90,000 funding applications analyzed key metrics such as revenue, loan approval rates, and operating expenses, revealing continued strength in industries like Healthcare and IT, which remained resilient through the past year and a half.
Wholesale Trade and Retail also showed strong growth, with Wholesale Trade leading in revenue ($1,345,157) and Retail rebounding post-pandemic to maintain the highest funding volume. These trends highlight the ongoing strength of these sectors as the incoming Trump administration prepares to focus on economic policies in January.
November 25: TCJA extensions or revisions: What lies ahead for 2025
With President-elect Donald Trump returning to the White House and Republican control of Congress, the future of the 2017 Tax Cuts and Jobs Act (TCJA) provisions looms large, with priorities including making the Qualified Business Income Deduction (QBID) permanent and restoring 100% bonus depreciation.
While Trump’s campaign promised sweeping changes, including lower corporate tax rates and new credits for caregivers and domestic auto purchases, experts highlight budget constraints that may lead to temporary extensions rather than permanent reforms, particularly as the cost of extending all TCJA provisions is estimated at $4.6 trillion.
Debate over IRS funding, potential SALT cap adjustments, and the renewal of expiring provisions underscore the challenges ahead, as tax professionals prepare for regulatory uncertainties and legislative negotiations expected to shape the 2025 tax landscape.
November 25: Trump nominates hedge fund chief Scott Bessent as Treasury Secretary
President-elect Donald Trump has nominated Scott Bessent, head of Key Square Group and former investment chief for George Soros, to serve as Treasury Secretary, marking a pivotal choice for advancing Trump’s economic agenda.
If confirmed, Bessent will oversee pressing initiatives like renewing Trump's 2017 tax cuts, managing ballooning federal debt, and addressing global economic diplomacy.
With experience in financial markets and a reputation as a fiscal hawk, Bessent aims to realign Treasury operations with market stability while advocating for policies such as tax reform and debt reduction.
Bessent, the first openly gay Treasury nominee, plans to liquidate his hedge fund holdings to avoid conflicts of interest as he prepares to navigate challenges including trade tensions with China, oversight of cryptocurrency markets, and the looming debt ceiling crisis. His selection underscores Trump’s focus on economic expertise to lead major fiscal initiatives in his second term.
November 21: 5 obstacles Republicans will face on the road to tax cuts
Republicans face significant challenges in advancing new tax cuts, including internal divisions over extending the 2017 Tax Cuts and Jobs Act, repealing green energy subsidies, and addressing controversial provisions like the SALT cap and Child Tax Credit.
Disagreements between President-elect Trump’s ambitious tax promises—such as eliminating taxes on tips, Social Security, and overtime pay—and the fiscal priorities of Congressional Republicans further complicate the process.
Tensions also exist between a deficit-conscious House and a more lenient Senate, with differing views on acceptable levels of deficit spending for the legislation. Establishing a clear budget framework will be critical, as various factions may interpret the agreed top-line figure to include conflicting priorities.
Additionally, proposals to eliminate green energy credits from the Inflation Reduction Act face resistance from Republicans representing districts that benefit economically from these programs. These complexities underscore the challenges of achieving consensus within the party on tax reform.
Technology:
November 20: Current AI scaling laws are showing diminishing returns, forcing AI labs to change course
AI labs are rethinking their approach to advancing large language models as traditional scaling laws—relying on increasing computer power and data during pretraining—show diminishing returns, with models improving more slowly than before.
This shift has been acknowledged by leading figures like OpenAI’s Ilya Sutskever and Microsoft CEO Satya Nadella, who point to alternative methods such as "test-time compute," where models use additional computational resources during inference to "think" more deeply and solve complex problems.
This new focus could significantly impact the AI landscape, particularly in hardware, as test-time compute requires specialized chips for high-speed inference, potentially benefiting startups like Groq and Cerebras.
Even if exponential gains through traditional scaling are waning, innovations in application-level design and user experience, such as ChatGPT’s Advanced Voice Mode, show significant room for growth, with developers leveraging better prompts, tooling, and UX decisions to enhance product performance.
Although AI researchers face challenges in sustaining past growth rates, industry leaders remain optimistic, emphasizing that both existing models and new techniques like “test-time compute” could yield substantial improvements. This marks a pivotal moment for AI, with labs shifting their focus to ensure that model advancements remain rapid, impactful, and aligned with practical applications.
The Treasury Inspector General for Tax Administration (TIGTA) has released a report titled "Artificial Intelligence and the Internal Revenue Service" (Report Number 2025IER003FR), dated November 2024, which examined the IRS's adoption and management of artificial intelligence (AI) technologies, focusing on their alignment with federal guidelines and the agency's strategic objectives.
The IRS has integrated AI technologies into various operations, including taxpayer services and enforcement activities; however, the report identified areas where the IRS's AI initiatives may not fully comply with federal guidelines, particularly those outlined by the Office of Management and Budget (OMB).
The report highlighted the need for enhanced governance structures to oversee AI deployment within the IRS. Additionally, it suggested that the current oversight mechanisms may be insufficient to ensure that AI applications align with ethical standards and legal requirements.
TIGTA emphasized the importance of robust risk management practices in the IRS's AI projects. The report also noted that without comprehensive risk assessments, AI applications could inadvertently lead to biases or other unintended consequences.
The report called for greater transparency in the IRS's AI operations, recommending that the IRS develop clear documentation and reporting practices to maintain accountability in AI decision-making processes.
TIGTA provided several recommendations to enhance the IRS's AI initiatives, including developing comprehensive AI policies, strengthening oversight mechanisms, conducting regular risk assessments, and enhancing overall transparency. The full report provided an in-depth analysis of the IRS's AI strategies and offers detailed guidance on improving the integration of AI technologies within the agency.
Energy and Environmental Policy/News:
November 21: Automakers urge Trump to preserve EV tax credits, boost self-driving cars
Major automakers, represented by the Alliance for Automotive Innovation, have urged President-elect Donald Trump to retain the $7,500 federal tax credit for electric vehicles (EVs) and to accelerate the adoption of self-driving car technologies, citing competition from heavily subsidized Chinese EVs and advancing regulations in China for autonomous vehicles.
The group also called for revisions to federal and state vehicle emissions regulations, particularly those in California, which they claim are misaligned with market realities and increase consumer costs.
Additionally, they requested a reassessment of the Biden-era rules requiring advanced emergency braking systems in nearly all vehicles by 2029, describing the standards as unattainable with current technology.
The automakers' plea comes amid reports that Trump’s transition team plans to eliminate the EV tax credit and roll back Biden’s fuel-efficiency and EV-focused regulations, moves that could slow the U.S. EV transition and shift priorities away from renewable and advanced vehicle technologies.
November 20: Why Biden’s $7.5B electric vehicle charger push is probably here to stay
Despite President-elect Donald Trump’s frequent criticism of the $7.5 billion allocated for electric vehicle (EV) chargers under Biden’s bipartisan infrastructure law, experts believe the funds are largely insulated from rollback due to legal protections and commitments already made to states.
The National Electric Vehicle Infrastructure (NEVI) program, which funds high-speed chargers, and the Charging and Fueling Infrastructure (CFI) program have secured around $4 billion in funds through approvals and contractor commitments, making it difficult for Trump to redirect or halt these resources without enacting new laws.
While the programs have faced delays, with only 102 NEVI-funded chargers operational out of an expected 30,000, their funding mechanisms, such as contract authority and advance appropriations, prevent unilateral executive action to rescind them.
Although Trump may pause unobligated spending or push for legislative changes, the bipartisan support and structural guardrails of these programs suggest that Biden’s initiative to build a nationwide EV charging network will largely remain intact, ensuring ongoing support for EV infrastructure.
November 20: IRS finalizes direct pay rules, increasing access to IRA’s clean energy tax credits
The Treasury Department and IRS announced final regulations on November 19 that expand access to clean energy tax credits for direct-pay-eligible entities such as local governments, public school districts, hospitals, tribes, and nonprofits.
These entities, which typically have little to no federal tax liability, can now utilize direct pay to claim clean energy credits for projects involving solar panels, wind turbines, battery storage, and other technologies.
The rules clarify how co-owned projects can elect out of partnership tax treatment, enabling eligible entities to use direct pay for their share while allowing non-eligible partners to transfer credits. Partnerships between multiple direct-pay entities or between these entities and for-profit developers are also permitted under the regulations.
Accompanying proposed rules introduce administrative requirements for organizations opting out of partnership treatment, with the IRS addressing questions about the broader tax implications of such elections. These changes aim to streamline collaboration on clean energy initiatives and boost investments in renewable energy projects.
For Fun:
November 20: Your friends shape your microbiome — and so do their friends
A study published in Nature reveals that social interactions significantly influence the composition of the gut microbiome, with individuals sharing microbial strains not only with those they live with but also with friends and even friends of friends.
Conducted in remote Honduran villages with minimal exposure to processed foods and antibiotics, the study found that spouses or household members share up to 13.9% of their gut microbes, while habitual friends share 10%, and villagers who don’t interact directly share only 4%.
The findings suggest that social connections create transmission chains of gut microorganisms, challenging traditional views that gut microbiomes are shaped solely by diet and environmental factors.
These results raise new possibilities for addressing health conditions like hypertension and depression, which have links to gut microbiomes, through microbiome-targeted therapies. Researchers emphasize that social interactions are overwhelmingly beneficial, often spreading components of healthy microbiomes alongside other positive effects.