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Chairman Smith Opening Statement – Hearing on the Employee Retention Tax Credit Experience: Confusion, Delays, and Fraud

July 27, 2023

As prepared for delivery.

“Thank you, Chairman Schweikert and Ranking Member Pascrell, for holding this hearing on the Employee Retention Tax Credit, and challenges that businesses and tax preparers have faced with this credit.

“As the government forced businesses to lockdown, Washington temporarily helped businesses keep their employees on payroll. That time has passed.

“Almost a year ago, President Biden went on TV and told Americans the pandemic is over. Yesterday, IRS Commissioner Werfel said the agency “has shifted efforts after successfully clearing the backlog of valid [ERTC] claims.” Yet, according to the IRS’s website, as of July 19, the agency still has almost half a million forms left to process. This speaks both to how the ERTC has become plagued by fraud and how the IRS is failing to process legitimate claims in a timely manner.

“The problems at the IRS were present from the very beginning. For starters, the IRS forced all businesses to apply on paper and mail in the application. That has led to long delays. The IRS told my staff in May that 20 percent of claims have sat unresolved for more than four months, and we have heard from other businesses who say they have been waiting years. For small businesses who filed legitimate claims, this has become a major source of frustration with the IRS.

“Businesses have found the IRS’ guidance confusing, particularly the rules about whether they are eligible or not. Some have raised concerns about how guidance has been insufficient and changed, forcing small businesses to spend more time with IRS rules that could be spent serving customers.

“Just this week, after the Ways and Means Committee announced this hearing, the guidance changed again. I hope this rule will help clarify who is eligible for this credit, but clear guidance should have been published a long time ago.

“The lack of clarity and speed from the IRS created an environment where dishonest third-party companies took advantage of businesses to either bend the rules or commit outright fraud.

“ERTC is on the IRS’ “Dirty Dozen” list of scams. Americans are bombarded by scammers all day, every day – texts, spam calls, misleading mailers, e-mails. To be put on that list speaks to the severity of this issue.

“We have a system where taxpayers get ripped off by scammers, while legitimate claims go unanswered because of a backwards IRS system.

“We have someone to testify today who has lived this issue day in and day out. Larry Gray is a fellow Mizzou grad, a neighbor from back home, and he even farms some of the same land today my family used to. He is a CPA who has spent decades helping families and small businesses in south-central Missouri navigate the tax code. He himself was the target of an ERTC scam, and he has lost clients to competing accountants because he refused to prepare fraudulent claims. Thank you for coming to Washington to share your experience with this program.

“I want to thank all our witnesses for sharing your ideas and perspectives to root out fraud and ensure Washington is helping those who deserve it.

“I yield back.”