East Arizona News

WASHINGTON, D.C. — U.S. Congressman David Schweikert (AZ-01) and Ways and Means Committee Chairman Jason Smith (MO-08) have written to IRS Commissioner Daniel Werfel, urging the agency to provide a plan to resolve concerns surrounding the Employee Retention Tax Credit (ERTC). The congressmen highlight ongoing issues with fraud, a backlog of unprocessed claims, and delays in distributing the credit to eligible businesses.

In their letter, Chairmen Schweikert and Smith request that the IRS address several specific concerns. They ask for details on how the agency plans to tackle fraud during the current moratorium on new claims, legislative proposals to combat fraud, the expected processing speed for existing claims, the data that led to the imposition of the moratorium, the total amount of refunds processed so far, and the timeline for eliminating the claims backlog.

“We write to highlight continued concerns surrounding the Employee Retention Tax Credit (ERTC) and ask that the Internal Revenue Service (IRS) provide the Committee on Ways and Means with the agency’s plan to resolve the backlog of unprocessed ERTC claims, prevent fraud, and ensure hardworking, eligible businesses receive the credit to which they are entitled in a timely manner,” wrote Chairmen Schweikert and Smith.

The congressmen's letter follows the IRS's decision on September 14, 2023, to impose a moratorium on processing new ERTC claims until 2024. It also comes after a hearing by the Ways and Means Subcommittee on Oversight, which shed light on the confusion, delays, and fraud within the program due to IRS mismanagement.

“On July 27, 2023, the Ways and Means Subcommittee on Oversight held a hearing titled ‘The Employee Retention Tax Credit Experience: Confusion, Delays, and Fraud.’ The hearing highlighted the large backlog of ERTC claims at the IRS and an alarming solicitation campaign by third-party ‘mills’ spreading misleading information and engaging in fraud,” wrote Chairmen Schweikert and Smith. “The hearing also made it clear that repeated changes to ERTC guidance by the IRS and a lack of regular communication from the agency regarding the credit has exacerbated applicants’ frustration and fostered an environment ripe for fraudsters…”

Fraud within the ERTC program has become so prevalent that it has earned a spot on the IRS's annual "Dirty Dozen" list of schemes and scams that put taxpayers at risk. Despite this, the congressmen note that the IRS has yet to propose any legislative solutions to address fraud and error.

Chairmen Schweikert and Smith also question the IRS's claim of having cleared the backlog of unprocessed ERTC claims. They refer to the agency's own website and testimony before the Subcommittee on Oversight, which suggest that the backlog may be worse than advertised.

“On July 26, 2023, one day before the Oversight Subcommittee’s ERTC hearing, the IRS issued a press release claiming that the ERTC backlog of valid claims had been cleared. Yet, the IRS’ own website noted that as of late July, there were still nearly 500,000 Forms 941-X that needed to be processed, and as of August 16, 2023, the figure increased to approximately 521,000,” wrote Chairmen Schweikert and Smith. “The September 5, 2023 statement also began by claiming the previous ERTC backlog had been cleared. It is concerning that the agency claimed a false victory over a backlog that has not been resolved.

“The July 27 hearing also revealed that the ERTC backlog figure undercounts how many claims have yet to be processed. When the President and CEO of the National Association of Professional Employer Organizations (NAPEO) was asked, ‘Do you think that the way the IRS calculates the number of unprocessed ERTC claims is accurate?’ he responded: ‘Well no because…a small PEO [Professional Employer Organization] may have a hundred claims with the IRS; large PEOs may have tens of thousands of claims. Each PEO is counted as one.’ The IRS’s inaccurate counting method clouds the scope of the backlog. If each small business claim represented by the PEO who filed the claim was counted individually, the ERTC backlog figure would likely be much larger.”

Additional background information reveals that fraud in the ERTC program has become prevalent enough to be included in the IRS's annual "Dirty Dozen" list of schemes and scams. The Wall Street Journal also reports that ERTC payments have reached $220 billion, with another $120 billion lined up, exceeding the original Congressional Budget Office estimate of $55 billion.

Read the full letter here.