Last-Minute IRS Rules Threaten North Carolina’s Small Business Recovery

Last-Minute IRS Rules Threaten North Carolina’s Small Business Recovery

By Billy Sewell

As a North Carolina business owner, I know how crucial small businesses are to our state’s economy. With over 1 million small businesses supporting nearly 1.8 million jobs, we are the backbone of innovation and job creation. Recent years have brought optimism, fueled by efforts to roll back unnecessary regulations. Yet, just as we begin to regain momentum after Hurricane Helene, the Biden Administration left us with harmful new IRS regulations, none more harmful than the latest IRS rule targeting business partnerships. 

In the wake of Hurricane Helene, North Carolina’s small businesses showed extraordinary resilience. Many invested their own resources to rebuild, revive local economies, and restore jobs. But now, just as these businesses are recovering, the IRS recently imposed new rules that threaten to add more red tape and unnecessary bureaucracy. Instead of supporting recovery, these regulations create more hurdles.

The most troubling of these new regulations is the crackdown on basis-shifting transactions—a lawful tax practice used by small businesses. This IRS’s latest rule isn’t about preventing fraud; it’s about making compliance so difficult that businesses face costly legal battles or excessive paperwork. Unlike large corporations with dedicated legal teams, small businesses don’t have the resources to keep up with every new IRS rule change. This regulation forces owners to waste time and money on compliance instead of rebuilding and hiring. The IRS already has the information it demands, making this measure unnecessary and treating businesses as guilty until proven innocent.

This mandate is more than bureaucratic red tape—it directly threatens North Carolina’s small businesses, especially those recovering from the storm. Compliance costs will soar, diverting resources away from expansion, investment, and job creation. The uncertainty from shifting tax regulations makes future planning nearly impossible. Rather than fostering growth, the federal government is stifling it with excessive regulations.

Back in 2022, Congress allocated $80 billion to the IRS to modernize its infrastructure and improve taxpayer services. Instead of using this money to streamline processes, the IRS decided to ramp up audits and enforcement efforts that unfairly target businesses that the Biden Administration didn’t like. If the goal were truly to improve compliance, the IRS would fix its broken systems rather than shifting the burden onto honest taxpayers. This misallocation of resources highlights bureaucratic overreach that places small business owners in the crosshairs of an overzealous agency.

Adding to this confusion, the IRS has also launched a new pass-through audit unit, operating outside traditional audit teams. This unit appears politically motivated, targeting lawful tax strategies that certain bureaucrats disfavor. Business owners now face the nightmare of dealing with uncoordinated IRS teams—leading to delays, confusion, and conflicting demands. This disorganized enforcement undermines trust in the IRS and creates an unpredictable tax environment. Law-abiding business owners should not have to navigate a bureaucratic maze just to comply with ever-changing rules.

Enough is enough. Congress must act to rein in the IRS and stop this harmful overreach. The newly formed pass-through audit unit should be disbanded immediately, as it serves no purpose other than harassing small businesses. Additionally, North Carolina’s elected officials, including Senators Thom Tillis and Ted Budd, must oppose the IRS’s harmful rule on basis-shifting transactions, advocate for reforms that prioritize fairness and transparency, and push back against politically motivated audits.

North Carolina’s economy still has a long way to go before we put Hurricane Helene behind us. The last thing our state needs is a politically motivated IRS with unchecked power that stifles growth and job creation. Our lawmakers in DC must act now to ensure tax regulations are fair, transparent, and pro-business. By holding the IRS accountable, we can protect small businesses and create a predictable environment for entrepreneurs across North Carolina, especially those still rebuilding from Hurricane Helene’s damage. The future of our state’s economy depends on it.

Billy Sewell is President & CEO of Platinum Corral, Inc., and is a past Chair of the NC Restaurant and Lodging Association.


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