Small Businesses, Tariffs, and the R&D Tax Credit
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:
April 15: IRS Marks 70th Anniversary of April 15 Tax Filing Deadline
On this Tax Day, the Internal Revenue Service (IRS) marks a significant milestone: the 70th anniversary of the April 15 federal income tax filing deadline. Since 1955, April 15 has been the consistent annual deadline for millions of Americans to file their federal income tax returns, becoming a fixture in the nation’s financial calendar.
The deadline was moved from March 15 to April 15 in 1955 to give taxpayers and the IRS more time to prepare and process increasingly complex returns. Over the years, innovations in technology and customer service have transformed the tax filing experience from hand-prepared paper forms to modern e-filing and online tools, making the process faster, more secure, and more accessible.
In 2024, more than 144 million individual tax returns were filed, with over 96% submitted electronically. Despite these changes, the importance of meeting the annual filing deadline remains the same. Most taxpayers must file by midnight tonight, though those needing more time can request an extension until October 15. However, any taxes owed must be paid by April 15 to avoid penalties and interest. For more information on filing options, taxpayer assistance, available credits, and deductions, visit IRS.gov.
April 14: Getting the IRS on the Phone is More Difficult This Tax Filing Season, Experts Say
Taxpayers calling the IRS for help processing their taxes this filing season may find it harder than usual to get someone on the phone, a problem expected to worsen next year with staffing cuts that could significantly reduce the workforce.
Data shows tax return processing times are largely in line with last year, but IRS employees involved in the 2025 tax season were not allowed to accept a buyout offer from the Trump administration until after the April 15 filing deadline, though thousands of probationary workers were laid off earlier this year. Legal experts say long wait times will increase as more buyouts and layoffs take effect. Eric Santos, executive director of the Georgia Tax Clinic, notes that IRS staff are overwhelmed with the increase in work, leading to longer wait times.
The reduction in workers, potentially nearly half the IRS workforce, is part of the Trump administration’s efforts to shrink the federal workforce through Elon Musk’s Department of Government Efficiency. Earlier this month, the IRS began layoffs that could cut up to 25% of the workforce. Comparing figures from the first week of April 2024 and 2025, 101.4 million returns were processed this year compared to 101.8 million last year, with refunds up to 67.7 million from 66.7 million in 2024. Experts worry that the 2026 filing season could be negatively impacted by the loss of thousands of additional tax collection workers.
A Treasury spokesperson said IRS staffing reductions are part of efforts to improve efficiency and service. Sakinah Tillman, director of the University of the District of Columbia Tax Clinic, has seen delays in reaching the IRS by phone, which could hurt clients trying to settle debts. Former IRS Commissioner John Koskinen warned that cutting 10,000 or 20,000 employees could lead to poor taxpayer service on the phone next year.
April 11: Texas Legislature Takes Steps to Extend and Expand Research and Development Credit
The 89th Texas legislative session has been active, with significant attention on extending and modifying the Texas Research and Development Credit (R&D Credit), set to expire on December 31, 2026. Senate Bill 2206 and House Bill 4393, introduced by Sens. Paul Bettencourt, Joan Huffman, and Rep. Charlie Geren, aim to extend the franchise tax credit beyond its current expiration date and make its administration more efficient by aligning it more closely with the federal R&D credit.
The Finance Committee unanimously approved Senate Bill 2206 on April 9, and it will now move to the full Senate for consideration. House Bill 4394 was referred to the Ways and Means Committee on April 1. If passed, the R&D Bills would create a separate R&D Credit program via the new Subchapter T, extending the credit beyond December 31, 2026, though without a specific sunset date.
The bills would repeal the R&D sales tax exemption, maintaining only the franchise tax credit, and adhere more closely to the federal R&D credit to simplify administration. Additionally, the bills propose increasing the taxpayer’s allowable research and development expenditures from 5% to 8.722% for franchise tax credit purposes. A study by Rice University’s Baker Institute found that a strong R&D Credit program could generate over 113,000 jobs in Texas by 2035 and over $13 billion in economic activity. Business representatives have voiced strong support for continuing and expanding the R&D Credit program. Senate Bill 2206 and House Bill 4393 are the first steps towards making that a reality.
April 9: Tax Court Weighs Risk and the R&D Credit
If research is considered "funded research" under Section 41(d)(4)(H) of the Tax Code, it is not eligible for the research credit. Research is deemed funded if payment is not contingent on the success of the research.
Two recent cases before the Tax Court, Systems Technologies Inc. and Smith, et al., examined whether the research was funded by analyzing local law. In both cases, the Tax Court denied the IRS's motion for summary judgment. With Systems Technologies, an Indiana-based company engineering and manufacturing industrial finishing systems, the Tax Court found that Indiana law requires Systems Technologies to refund payments if the product is not delivered, making payment contingent on the success of the research.
In the Smith case, shareholders of Adrian Smith + Gordon Gill Architecture LLP claimed research credits for projects intended to be the tallest buildings in the world. The contracts contained choice-of-law provisions supporting their contention that the funding exclusion did not apply. The regulations state that amounts payable under agreements contingent on the success of the research are not treated as funded, and the party performing the research is entitled to the credit if it retains substantial rights in the research.
The Tax Court found the taxpayer's arguments compelling and denied summary judgment regarding one of the projects. These decisions are positive for taxpayers, as the Tax Court continues to give significant weight to choice-of-law provisions within contracts, shifting contractual funding analysis back toward traditional contract analysis.
Acting Internal Revenue Service Commissioner Melanie Krause has informed her staff that she is leaving the agency amid internal chaos and the departure of several senior IRS officials.
Krause’s decision follows the finalization of an agreement between the IRS and the Department of Homeland Security to provide sensitive taxpayer data to federal immigration authorities. This controversial data-sharing agreement played a role in Krause’s decision to leave, as the final agreement differed from the last draft she reviewed. Additionally, Krause was concerned about the direction of the agency and the exodus of multiple senior executive career employees.
The IRS has seen three leaders depart this year, including the Biden-appointed IRS commissioner, Danny Werfel, and his successor, Doug O’Donnell, who refused to sign the data-sharing agreement and subsequently retired. Krause, who had been at the IRS for three-and-a-half years, took over in an acting capacity.
Treasury Secretary Scott Bessent ultimately signed the data-sharing agreement due to concerns about its legality. The dispute over the deal has triggered multiple resignations among senior IRS officials. The administration is also discussing reassigning IRS criminal investigators to support DHS in border enforcement work and possibly moving the IRS criminal investigations agency to be part of the Treasury.
April 9: Why Trump’s Tariffs May Do Little to Pay for Tax Cuts
The White House argues that revenue from President Trump’s tariffs on U.S. importers will help pay for domestic tax cuts. Stephen Miran, chair of the White House Council of Economic Advisers, claims that lower taxes on Americans, financed partly by revenue from foreigners, will create economic growth.
However, the tariffs' inflationary effects could undercut savings for American households, effectively subsidizing cost increases spurred by tariffs. Additionally, if the tariffs work as intended, they could shrink their own tax base as businesses import fewer goods from abroad. Projected tariff revenues are just a fraction of the cuts Trump is seeking legislatively.
Trump’s proposed $600 billion annually in import taxes falls short of the cost of his tax plan, which includes extending the 2017 tax cuts projected to cost $4.6 trillion over the next decade. Estimates for long-term tariff revenues range between $2 trillion and $3 trillion over the next decade. Tariffs are not levied simply to collect revenues, but as a side effect of reducing U.S. imports.
The benefits of the 2017 tax cuts were skewed toward higher earners, while higher tariffs amount to a regressive tax, impacting lower and middle-income households more. Trump’s additional tax cut proposals are unlikely to redistribute the overall burden of the tariff-and-tax-break combination. The tariffs will not show up in official scorekeeping as they are imposed by administrative action, making it difficult to compare their revenue effects with tax cuts. Economists remain skeptical of the numbers provided by the White House on tariffs and taxes.
Economic News/Policy:
April 14: Small Businesses Sue Trump Administration Over Authority to Impose Tariffs
A group of US businesses has filed a lawsuit arguing that President Donald Trump’s tariffs are illegal under the International Emergency Economic Powers Act (IEEPA).
The suit, filed in the US Court of International Trade by the Liberty Justice Center on behalf of five businesses, claims that the tariffs have "severely harmed" them. The plaintiffs argue that the IEEPA does not allow the president to unilaterally impose tariffs without meeting the criteria of an “unusual and extraordinary threat” to national security or the economy.
Jeffrey Schwab, senior counsel at the Liberty Justice Center, stated that the Constitution gives Congress, not the president, the power to set tax rates, including tariffs. In response, White House spokesperson Harrison Fields said that trade deficits with other countries constitute a “national emergency” and that Trump’s plan aims to level the playing field for businesses and workers.
This lawsuit follows a similar legal challenge by the New Civil Liberties Alliance, which also argues that the IEEPA does not authorize the president to enact tariffs. The escalating trade war between the US and China has seen tariffs on Chinese goods increase to 145%, with China retaliating with a 125% tariff on US goods.
April 10: Trump Threatens to Put Higher Tariff Rate Back if Countries Don’t Strike Deals
President Donald Trump has threatened to reverse the 90-day pause on country-specific tariffs if countries do not strike a deal with his administration before the deadline.
During an on-camera meeting with his Cabinet, Trump stated that if a mutually beneficial deal is not reached, the tariffs will return to their previous rates. The president announced the 90-day pause on higher tariffs for trading partners, reducing the tariff rate to 10 percent, except for China, which is now at a 145 percent rate due to an escalating trade war.
Trump expressed optimism about reaching a deal with China but did not reveal his next moves. The European Union has put retaliatory tariffs on hold for 90 days following Trump's announcement. Trump’s negotiating team, including Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick, are confident about countries coming to the table.
About 75 countries have approached the administration to strike a deal since the initial tariff announcement, which impacted 135 countries, including Canada and Mexico. Trump emphasized the need for deals that are good for both parties and did not rule out extending the 90-day pause.
April 10: House Approves Budget Framework for Trump’s ‘Big’ Bill After Intense Wrangling Sways GOP Holdouts
House Republicans narrowly approved their budget framework on Thursday after Speaker Mike Johnson worked late into the night to satisfy GOP holdouts who had refused to advance trillions of dollars in tax breaks without deeper spending cuts. Johnson, alongside Senate Majority Leader John Thune, committed to seeking at least $1.5 trillion in cuts to federal programs and services.
The 216-214 vote pushed the budget plan forward, marking a significant milestone for Johnson and the next step in advancing President Donald Trump’s domestic agenda of tax cuts, mass deportations, and a smaller federal government. A failed vote would have been a major setback, especially as the economy was affected by Trump’s trade wars. Two conservative Republicans and all Democrats voted against the plan. Trump had urged Republicans to stop grandstanding on the budget, and by Thursday morning, he expressed optimism, stating, “Biggest Tax Cuts in USA History!!! Getting close.”
The action still leaves weeks, if not months, ahead as House and Senate Republicans turn their budget framework into bill text. House Democratic leader Hakeem Jeffries criticized the GOP budget plan, calling it a “toxic scheme” that proposed the largest cuts to Medicaid and food assistance in history. Late Wednesday, the outcome was uncertain, with at least a dozen conservative Republicans firmly against the plan.
However, after intense negotiations, most holdouts came on board, assured by Johnson, Thune, and Trump of steep cuts ahead. The plan includes preserving the 2017 tax breaks and potentially adding new ones, raising the nation’s debt limit, and allowing for more than $500 billion in budget increases. The House and Senate still need to resolve their differences on the debt limit, with the House GOP increasing it to $4 trillion and the Senate to $5 trillion. A final product is expected later this spring or summer, with more voting to come.
Energy and Environmental Policy/News:
April 11: As Congress Slashes Spending, Will Clean Energy Tax Credits Survive?
The promise of 10 years of tax credits in the Inflation Reduction Act (IRA) has allowed companies like PosiGen and Enphase Energy to secure significant investments, expand their operations, and move manufacturing to the United States.
Since the passage of the IRA, over 362 large-scale clean energy projects totaling $132 billion have been announced. However, the IRA, a cornerstone of President Joe Biden’s climate efforts, has been targeted by Republicans despite its benefits to GOP districts. As Congress debates clean energy tax credits, multiple Trump priorities, including boosting U.S. manufacturing and lowering consumer costs, could be hampered. Republican leaders aim for $1.5 trillion in federal spending cuts, making clean energy tax credits a target.
Repealing these credits could increase household electricity rates by up to 10% and electric generation costs by 14%, while also increasing carbon dioxide emissions. Despite political hostility, renewable sources supply 21% of U.S. electricity, with solar and batteries expected to account for 81% of new generation in 2025.
Removing tax credits could hinder clean energy progress and increase electricity demand. Some GOP members, led by Rep. Andrew Garbarino, are pushing to save clean energy tax credits, urging targeted and pragmatic changes. The clean energy lobby remains optimistic, highlighting the importance of American manufacturing and energy independence.
April 11: 4 Senate Republicans Warn Against ‘Full-Scale’ Repeal of Energy Tax Credits
A group of four Senate Republicans, including Sens. Lisa Murkowski (Alaska), John Curtis (Utah), Thom Tillis (N.C.), and Jerry Moran (Kan.), have warned against a “full-scale” repeal of energy tax credits passed by Democrats in 2022.
In a letter addressed to Senate Majority Leader John Thune (R-S.D.), they cautioned that repealing these credits could lead to significant disruptions for the American people and weaken the U.S.'s position as a global energy leader. The senators urged consideration of each existing tax credit for its ability to spur domestic manufacturing and investment, reduce utility bills for consumers, especially in rural remote communities, and ensure certainty for businesses that have already made meaningful U.S. investments based on the current credit structure.
While acknowledging the GOP’s need to balance the budget, they advocated for a targeted, pragmatic approach that balances these priorities without undercutting current and future private-sector investments vital to domestic manufacturing, energy innovation, and affordability for American families. Their stance could pose a challenge to Republicans' budget reconciliation bill, which aims to pass legislative priorities with a simple majority in both chambers. The letter follows a similar message from a group of 21 House Republicans earlier this year.
April 11: Chart: In a First, Clean Power Beat Fossil Fuels on US Grid Last Month
For the first time, fossil fuels accounted for less than half of U.S. electricity production across an entire month as clean power generation surged in March. Last month, fossil gas and coal made up just over 49% of power generation, while solar, wind, hydropower, biofuels, and other renewables, along with nuclear, met 51% of demand, according to new data from think tank Ember.
This milestone highlights the progress of the U.S. energy transition over the past decade, during which the country has significantly increased its solar, wind, and battery capacity. In March, solar and wind generation increased by 37% and 12%, respectively, compared to March 2024, while fossil-fuel generation fell by 2.5%.
The achievement occurred during the spring "shoulder season," a period of milder temperatures and lower energy demand, which historically allows for maintenance of fossil-fuel and nuclear power plants. Despite political hostility toward clean energy and the federal government's renewed support for fossil fuels, renewables continue to grow, demonstrating that clean energy is now a cornerstone of the U.S. power system.
President Donald Trump has expressed opposition to wind turbine construction and has signed executive orders to boost coal, while Congressional Republicans consider cutting tax credits for clean energy projects. However, the continued rise of renewables underscores their importance in the U.S. energy landscape.
Technology:
April 13: Jack Dorsey and Elon Musk Would Like to ‘Delete All IP Law’
Jack Dorsey, co-founder of Twitter (now X) and Square (now Block), sparked a debate around intellectual property, patents, and copyright with a post declaring, “delete all IP law.” Elon Musk quickly replied, “I agree.”
These comments come at a time when AI companies, including OpenAI, are facing lawsuits alleging copyright violations to train their models. Tech evangelist Chris Messina supported Dorsey’s point, suggesting automated IP fines for AI infringement could replace jail for cannabis possession.
Others, like Ed Newton-Rex and Lincoln Michel, criticized the stance, arguing it undermines creators and artists. Dorsey elaborated, claiming current models take too much from creators and only rent-seek. Attorney Nicole Shanahan argued IP law separates human creations from AI creations, to which Dorsey countered that creativity separates us and the current system limits it. Musk’s reply aligns with his past statements, such as calling patents “for the weak” and pledging Tesla would not enforce patents against companies using them in good faith.
Dorsey has shown interest in open-source approaches, initiating the project that became Bluesky. The line between conversations on Twitter/X and government policy is thinner, with Musk joining the Trump administration and pushing mass layoffs through his Department of Government Efficiency.
April 13: Trump Says Tariffs on Imported Semiconductor Chips Coming Soon
President Donald Trump announced that he would be revealing the tariff rate on imported semiconductors within the next week, indicating that the exclusion of smartphones and computers from his reciprocal tariffs on China is likely to be short-lived.
Trump emphasized the need to manufacture chips and semiconductors domestically and mentioned the possibility of flexibility with some companies in the sector. Earlier, Trump announced a national security trade probe into the semiconductor sector. Commerce Secretary Howard Lutnick clarified that critical technology products from China, including semiconductors, would face new duties within the next two months.
This announcement follows a week of significant market volatility, with the Standard & Poor’s 500 index down more than 10% since Trump took office. Beijing responded by increasing its tariffs on U.S. imports to 125%. Billionaire investor Bill Ackman called for a temporary pause on the broad tariffs on China, while U.S. Senator Elizabeth Warren criticized the tariff policy as chaotic.
The U.S. Customs and Border Protection agency published a list of tariff codes excluded from import taxes, including computers and semiconductor devices. White House trade adviser Peter Navarro mentioned ongoing negotiations with several countries, excluding China. Trade Representative Jamieson Greer expressed hopes for meaningful deals with non-Chinese countries within 90 days. Billionaire Ray Dalio warned of a potential recession due to the tariffs.
For Fun:
April 9: Scientists Map Part of a Mouse’s Brain That’s So Complex It Looks Like a Galaxy
Scientists have created the largest functional map of a brain to date, using a piece of a mouse’s brain about the size of a poppy seed. The researchers identified 84,000 neurons and traced their communication through 500 million synapses.
The dataset, published by the journal Nature, is assembled in a 3D reconstruction and is open to scientists worldwide for further research. The project involved showing a mouse video snippets from various genres, recording how its neurons lit up, and analyzing the brain tissue using electron microscopes.
Princeton University scientists used artificial intelligence to trace the wiring and create digital 3D copies of the data. The mapping could help scientists find treatments for brain diseases by identifying abnormal connectivity patterns.
The work marks a major leap forward and offers an invaluable community resource for future discoveries. The Machine Intelligence from Cortical Networks consortium was funded by the National Institutes of Health’s BRAIN Initiative and IARPA.