WASHINGTON, DC – The Oversight Subcommittee of the Committee on Ways and Means recently examined the challenges businesses and tax preparers have faced with the Employee Retention Tax Credit (ERTC), a COVID-era benefit to help businesses keep Americans on payroll during government-mandated lockdowns. Witnesses highlighted that due to confusing and changing IRS rules and outdated processes, the agency still has roughly 500,000 claims to process almost a year after President Biden declared the pandemic over. While legitimate claims sometimes wait months or years to be processed, fraud is rampant in the program.
ERTC Scammers Get Taxpayer Money, While Legitimate Claims Go Unanswered
Aggressive spam calls, text messages, misleading mailers, and ads urging employers to claim the ERTC have become rampant. As Ways and Means Committee Chairman Jason Smith (MO-08) pointed out in his opening statement, the fraud in the ERTC program has become so prevalent that it earned a place on the IRS’s annual “Dirty Dozen” list of the worst scams in America.
Chairman Smith: “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. Text, spam calls, misleading mailers,emails – to be put on the list speaks to the severity of this issue. We have a system where taxpayers get ripped off by scammers, while legitimate claims gounanswered because of a backwards IRS system.”
IRS Delays and Outdated Processes Means Claims Remain Unresolved
The problems with the ERTC began with an entirely paper application, which added to the backlog of unprocessed ERTC claims. Oversight Subcommittee Chairman David Schweikert (AZ-01) walked through how IRS processes created delays that led to a backlog of almost 500,000 still unresolved claims.
Rep. Schweikert: “One of the challenges is the backlog of ERTC claims that the IRS still needs to process. Form 941-X, the form by which employers must file their ERTC claims, is a paper form. The employers had to file many ERTC claims retroactively. As a result of processing these claims by the IRS has been shown to create a massive backlog of unprocessed claims. Some employers have been waiting months if not years for the credits that still have not actually been processed. This delay has created immense hardship for employers, particularly small businesses who desperately needthe help in retaining their employees during the height of the COVID-19 pandemic.”
Even Members of Congress Are Targeted for ERTC Scams
ERTC scams have become increasingly prevalent, as scammers take advantage of businesses confused by the IRS’s vague and unhelpful guidelines. Scammers often follow the same playbook – send an unsolicited message,call, or mailer and promise thousands of dollars. Sometimes these third party entities require that the business first pay a fee or give the third party a portion of the credit that the business receives. At the hearing, Rep. Beth Van Duyne (TX-24) shared a voicemail from an ERTC fraudster – one that is similar to those that millions of Americans have also received.
Rep. Van Duyne Voicemail from ERTC Scammer: “You get this message? Can you call me back … This is about an additional tax refund for your business for the year 2020 and 2021. You’re actually scheduled to receive about $26,000 for every W-2 employee you have…”
Rep. Van Duyne: “Who wouldn’t call back on this?”
Rep. Van Duyne: “It is amazing to me how many of these calls I’ve gotten. By the way, I call back…they still keep me on the list. And I tell them who I am. And yes, while I may have employees, I guarantee you, I’m not eligible, and they still keep me on that list. We have learned that these ERTC mills have been approaching businesses and telling them that they qualify for the ERTC, even though some of these businesses were already told by their tax preparers that they don’t qualify for the credit. So how prevalent do you find this issue, if I’m getting calls and you’re getting calls just this morning? Do youthink it’s led to an increase in improper ERTC claims?”
Mr. Cleary: “100 percent. And you know, to your question, who on earth would call these people back?The answer is simple – desperate businesses.”
IRS Must Get to The Bottom of the 500,000 Unprocessed ERTC Claims
Almost 500,000 Forms 941-X remain unresolved, but the IRS has issued conflicting information regarding the current size of its ERTC backlog. On one hand, the IRS claims that the backlog is 99 percent cleared. Yet the IRS’s own website shows that as of one week ago, nearly a million claims remain. Witness Pat Cleary, President and CEO of the National Association of Professional Employer Organizations, pointed out in response to Rep. Claudia Tenney (NY- 24), the uncertainty over the size of the backlog casts doubt on the IRS’s already weakcredibility.
Rep. Tenney: “The IRS claims to have doubled the amount of employee retention tax credit claims that they process every week from processing 20,000 claims per week during the filing season down to 40,000 claims per week. Just yesterday, the IRS issued a press release where Commissioner Werfel stated that the IRS has successfully cleared the backlog of valid ERTC claims. They even said it was 99 percent done. From your experience, and you just indicated this, does it seem like the ERTC backlog has beencleared?”
Mr. Cleary: “No. In fact, their own website a week ago said that it was almost 500,000 in the backlog, so they clearly didn’t clear that out in a week. You know that’s the first problem that we’re seeing occur with this. And you see again, last week that it ticked back up by another few 100,000, so it’s almost at half a million. Whatever the problem is, there’s something out of whack with the count. And you know, and I agree we wish the Commissioner well, as I said, we’ve had a really goodrelationship with the IRS. But for his credibility, I think first shot out of the box, he needs to be credible andtruthful in terms of describing what the backlog is.”