A new report from Oxford Economics and the Small Business & Entrepreneurship Council (SBE Council) spells out what many entrepreneurs have felt for years: IRS enforcement uncertainty isn’t abstract policy talk. It’s a direct drag on growth.
The numbers are staggering: eliminating tax enforcement uncertainty could boost private-sector investment by $119 billion annually, increase annual revenues by up to $1.4 trillion, and could create 4.3 million new jobs. Additionally, businesses could save $8.8 billion annually in compliance costs.
As Karen Kerrigan, president of SBE Council, put it: “The excessive cost and burden of compliance, combined with tax code complexity and enforcement uncertainty, is smothering growth and competitiveness for America’s small businesses.”
The Numbers Behind the Pressure
The Oxford Economics study, released in late July, modeled the macroeconomic impact of enforcement unpredictability. Here’s what it found:
- $118.8 to $119B in additional private-sector capital investment if uncertainty were addressed.
- $1.0 to $1.4T in additional business revenue (2.3% to 3.2% annual growth).
- 3 to 4 million more jobs each year.
- $8.8B reduction in annual compliance costs.
But the most telling data comes from small-business leaders themselves:
- 71% say IRS enforcement uncertainty hurts their ability to compete with larger companies.
- Over one third avoid claiming legitimate credits, such as the R&D credit, out of fear of audit scrutiny.
- 57% spend at least 9% or more of annual revenue just trying to comply with tax rules.
That’s not just inefficiency, but hesitation on a national scale.
Why This Is Spiking Now
The root of the problem is IRS whiplash. One year, Washington talks tough on enforcement, promising more audits and tighter oversight. Next, funding gets pulled back and priorities shift. For small business owners, it’s like trying to play a game when the referees keep swapping rulebooks. You don’t know which calls will stick, what triggers scrutiny, or how long today’s guidance will actually last.
And this uncertainty doesn’t just show up in your books. It echoes through the broader economy. The Yale Budget Lab recently warned that underfunding enforcement could cost the federal government anywhere from $350 billion to $2.4 trillion over the next decade, depending on how businesses respond to the enforcement measures. That tells you something important: unpredictability doesn’t just stall entrepreneurs; it also drags down national revenue.
But if the macro numbers feel abstract, here’s what it looks like on the ground. Audit anxiety convinces owners to leave money on the table. I talk to founders all the time who qualify for the R&D credit but don’t claim it because they’re afraid it’ll trigger an audit, even though firms like Aprio remind us that with proper documentation, the credit itself doesn’t raise your audit risk. Others delay investments, such as new equipment and new hires, because they’re waiting for the “IRS picture” to clear, missing windows of opportunity. And nearly six in ten businesses end up spending close to ten percent of their revenue just trying to stay compliant, money that should be fueling growth instead of paperwork.
This isn’t a policy debate for the average entrepreneur. It’s second-guessing every decision. It’s cognitive load piling up until leaders default to inaction. And that hesitation? That’s the real tax.
When Uncertainty Becomes a Second Job
Audit risk often translates into decision risk. Faced with unclear rules, many business owners pause on critical moves, holding off on hiring, delaying investments, or avoiding legitimate credits. One deferred decision leads to another until strategies are shaped less by growth goals and more by fear of unpredictable enforcement.
Experts argue that resilient businesses address this by treating uncertainty as a routine part of their operations. That means building systems to:
- Protect income and reduce liability.
- Claim credits and incentives with confidence.
- Set clear expectations so filing season doesn’t bring surprises.
- Free up leadership bandwidth for growth instead of compliance firefighting.
Tax uncertainty itself may be unavoidable. But the stress it creates inside organizations doesn’t have to be.
Why Guardrails Still Matter
Not everyone sees enforcement as a problem. Policymakers argue that robust audits help level the playing field and ensure fairness across the system. International examples support this: in the United Kingdom, abuse of R&D credits has prompted a crackdown, underscoring the need for robust oversight.
The real challenge, analysts say, isn’t enforcement itself but unpredictability—rules that shift without warning, audits that feel arbitrary, and guidance that arrives too late. Businesses thrive when expectations are clear, even if the standards are strict.
Practical Guidance for Founders
Industry advisors suggest several ways for small firms to reduce the burden of uncertainty:
- Make eligibility clear. If a company qualifies for credits, such as the R&D credit, it should not avoid them out of fear of an audit. Proper documentation and professional guidance help protect legitimate claims.
- Treat compliance as year-round. Ongoing recordkeeping can transform an audit from a crisis into a paperwork exercise.
- Budget for questions. Building time and resources for potential inquiries into annual planning reduces the shock factor.
- Communicate internally. Explaining which credits are being claimed and how they are supported can lower anxiety among staff and reinforce confidence in the process.
Conclusion
IRS enforcement uncertainty is costing the economy billions, sidelining job creation, and saddling small businesses with outsized compliance costs. The bigger cost, however, is momentum. Each time a business hesitates out of audit anxiety, it loses ground on growth opportunities.
While firms cannot control shifting policy, they can control how they prepare. Systems that transform unpredictable enforcement into a predictable routine enable leaders to maintain their focus where it belongs—on building, hiring, and investing.
Uncertainty doesn’t have to be your business model. Build processes that make audits routine, and put your attention back on growth
Sources
Oxford Economics / SBE Council
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