Why Businesses Must Act Now: Preparing for IRS Scrutiny and Incoming Legislative Changes

1. Proactive Audit Preparedness:

The IRS has already flagged programs like the Employee Retention Tax Credit (ERTC) and Section 174 claims for increased scrutiny. Waiting to address these issues could leave companies exposed to audits and penalties.  

• Tax consultants can help identify vulnerabilities in past filings and strengthen documentation. 
  
  
• Early preparation ensures businesses are ready if the IRS initiates inquiries or audits. 
  
  

2. Legislative Uncertainty:

While the repeal of Section 174 is expected under a Republican-controlled Congress, the timing remains uncertain. Businesses should: 

• Take immediate steps to address compliance for 2024 while preparing for potential retroactive changes in 2025.
  
  
• Work with experts to navigate legislative ambiguity and optimize filings for current laws. 

3. Deadlines and Opportunities:

• ERTC Claims: Businesses have a limited window to claim the ERTC for eligible periods. Consulting with firms like yours ensures that claims are accurate and maximized.
  
  
• R&D Claims Under Section 174: Even with an anticipated repeal, businesses must comply with current requirements through 2024. CPA firms can assist in: 
  
  • Filing amended returns to address deferred claims. 
    
  • Preparing for swift action to adjust filings if repeal legislation is passed retroactively. 

4. Complexity of Tax Law:

Navigating tax incentives like the ERTC and R&D credits is highly technical, with strict documentation requirements and overlapping regulations. Consultants: 

•  Provide clarity and expertise to avoid missteps.

• Reduce the administrative burden on companies' internal teams by managing compliance and audit preparation.
  
  

Expected Timelines and Deadlines

1. IRS Deadlines:

• ERTC Filing: The deadline for amending payroll tax filings to claim the ERTC for 2021 is April 15, 2025. This window is closing fast for many businesses, making immediate action essential. 
  
  
• R&D Claims: Businesses filing R&D Tax Credit claims for 2024 must comply with the Section 174 capitalization and amortization rules unless repealed. However, planning for retroactive adjustments will streamline compliance once legislative changes occur. 

2. Legislative Action Timeline:

• 2024 Preparation: Given the divided government, repealing Section 174 is unlikely until after the new Congress takes office in 2025. However, businesses should be ready to act quickly if repeal legislation applies retroactively. 
  
  
• Potential Changes in 2025: Republican lawmakers have signaled a strong intention to prioritize the repeal of Section 174 and other business-friendly tax reforms. Companies should align with tax consultants now to prepare strategies for these anticipated changes. 

Benefits of Engaging Early with Tax Consulting Firms

• Customized Risk Assessments: Firms like yours can identify specific risks tied to unique business operations, ensuring tailored compliance strategies.
  
  
• Documentation Strengthening: Experts can guide businesses in gathering and organizing required documentation to withstand audits. 
  
  
• Maximized Incentives: With comprehensive knowledge of tax law, consultants ensure businesses take full advantage of incentives while staying within IRS guidelines. 
  
  
• Seamless Legislative Transitions: Early engagement prepares businesses to adapt quickly to changes in tax law, reducing disruptions and ensuring compliance.

Next Steps for Businesses

To stay ahead, businesses should:

1. Schedule Consultations: Reach out to tax consultants experienced in these fields immediately to assess current filings and identify areas needing attention.
   
   
2. Prepare for Audits: Begin assembling and reviewing documentation for all past claims, including ERTC and R&D credits. 
   
   
3. Monitor Legislative Updates: Work with consultants to stay informed on potential changes in tax law and their implications. 
   
   
4. Develop a Compliance Roadmap: Create a plan with specific timelines to address deferred claims, audit preparation, and legislative adjustments.

Take Control of Your Tax Strategy Now

Engaging with tax consulting firms early in 2025 is not just a smart move—it’s essential for businesses aiming to stay compliant and maximize the benefits of tax incentives. The window for addressing deferred claims and preparing for audits is narrowing, and waiting until legislative changes are finalized could leave businesses scrambling to adapt. 

Partnering with tax incentive experts now ensures businesses are well-prepared to meet current requirements, anticipate audits, and capitalize on the opportunities that the anticipated repeal of Section 174 and other reforms may bring. Don’t wait—act today to stay ahead of the curve. 

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