On July 27, the House Ways & Means Committee’s Subcommittee on Oversight held a hearing on delays in processing employee retention tax credit (ERTC) claims, and on reports of widespread fraudulent claims for the pandemic-era tax credit.

The ERTC, which has now expired, is a pandemic-era tax credit that helped employers keep employees on the payroll during the nationwide COVID-related shutdown. Many NAIFA members applied for the ERTC, and so will be interested in Congressional oversight of the tax credit. The hearing at Ways & Means spotlighted both the issues arising from the backlog at the Internal Revenue Service (IRS) in processing ERTC claims from the past three years, and the fraud permeating the ERTC world. The prevalence of fraud in ERTC claims, often through third-party providers offering huge ERTC “refunds”, has led the IRS to include the ERTC on its annual list of the “Dirty Dozen” tax scams about which it warns taxpayers.

At the hearing, Members and witnesses noted the problems with the backlog at the IRS arose from the need to file on paper to claim the ERTC, and the complexity of the rules governing the credit. In addition, some at the hearing claimed the IRS did not issue “adequate guidance”. Adding to the problem is the significant level of fraud and the IRS’ commitment to “aggressively crack down” on erroneous (fraudulent) ERTC claims.

One recommendation emerging from the hearing came from an accountant who advised the IRS to send “soft letters” to ERTC claimants to advise them to look into filing amended returns if they calculated their ERTC claims incorrectly.

Finally, subcommittee members rejected calls for extending the ERTC. The ERTC was targeted to help employers grappling with pandemic shutdown issues, they said. The pandemic is over, so the reason for the credit is no longer in play. However, resolving problems with still-pending old claims, and with rooting out fraud, should be a priority, they said.

Prospects: It appears unlikely that Congress will consider extending the ERTC. But it seems prudent for taxpayers that claimed the ERTC but have not yet received payment on their claims to look into whether their calculations are accurate and whether their claims fully complied with the requirements for getting the ERTC.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.