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Tax Relief for American Families and Workers Act Ends COVID Program Rife with Fraud, Saving Taxpayers Over $70 Billion

January 20, 2024

WASHINGTON, D.C. – The Tax Relief for American Families and Workers Act saves taxpayers over $70 billion by ending the Employee Retention Tax Credit (ERTC), according to official analysis released this week by the Joint Committee on Taxation (JCT). Originally designed to help small businesses impacted by COVID lockdowns, the pandemic-era program has ballooned in cost and suffered from rampant fraud. One individual was arrested for seeking over $124 million in fraudulent benefits – filing over 1,000 ERTC claims and allegedly receiving over $1 million in checks to his company from the IRS and another $31 million for clients based on false tax returns.

In addition to the proliferation of ERTC mills that are preying on unsuspecting small businesses – stealing time and resources – fraud within the program has also created a chronic backlog in the processing of legitimate claims by the IRS, which is further harming the very small businesses the program was supposed to help. As recently as this past August, the agency had approximately 521,000 in unprocessed claims. 

When the ERTC was originally created, the Congressional Budget Office (CBO) projected it would cost taxpayers $55 billion. As of July 2023, the IRS had doled out an estimated $230 billion and counting, already six times higher than CBO’s original estimate. The IRS reported in October 2023 that the agency had received approximately 3.6 million claims, up from 2.5 million in July 2023 – an increase of 1.1 million in new claims over the course of 11 weeks, or roughly 100,000 new claims per week. According to JCT’s analysis, ending this program will save an estimated $77 billion in taxpayer dollars and failing to act will cost the taxpayer nearly $1 billion per day.

During a Ways and Means Subcommittee on Oversight hearing last year, Chairman Jason Smith (MO-08) highlighted the ERTC as a prime example of pandemic-era fraud:

“We also know the Employee Retention Tax Credit program has been an easy and convenient target for criminals seeking to defraud the government as well as small businesses – to such an extent that as was discussed at our Oversight hearing in July, the ERTC program is on the IRS’ ‘Dirty Dozen’ list of worst scams in the country. In fact, as of the end of July, the IRS has initiated 252 investigations covering over $2.8 billion of potentially fraudulent ERTC claims from 2020 to 2022.”

Under the Tax Relief for American Families and Workers Act, the filing deadline for backdated ERTC claims is moved up to January 31, 2024. Additionally, the bill applies disclosure requirements and penalties in the tax code to those whose business model has been shown to profit from making sensational, misleading claims about the ERTC and robbing hard working small businesses and the American taxpayer. 

READ: Four Key Moments from Ways and Means Hearing on the Employee Retention Tax Credit

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