As prepared for delivery.
“Good afternoon and welcome to today’s Oversight Subcommittee hearing. This is a hearing to allow Members of the Committee to hear from those directly impacted by the challenges associated with the Employee Retention Tax Credit (ERTC). The hearing will also allow us to hear from those who are helping employers navigate the ERTC and the agency that processes and administers the credit—the Internal Revenue Service (IRS).
“The ERTC is a refundable tax credit, originally enacted as part of the Coronavirus Aid, Relief, and Economics Security Act (CARES Act) in March 2020, for businesses and tax-exempt organizations. The ERTC was designed to help businesses retain employees during the COVID-19 pandemic.
“The ERTC, however, can be a complex credit to calculate correctly, as there are many rules and regulations that make it difficult for small businesses to figure out on their own. What’s worse, is we have repeatedly heard from stakeholders about hardships caused by processing backlogs; how the IRS has not issued sufficient guidance; and how the IRS does not provide updates to taxpayers about the status of their ERTC claims. These challenges create a lot of uncertainty for small businesses.
“One such challenge is the backlog of ERTC claims that the IRS still needs to process. Form 941-X—the form by which employers must file ERTC claims—is a paper form, and employers had to file many ERTC claims retroactively. As a result, the processing of these claims by the IRS has been slow and created a massive backlog of unprocessed claims.
“Some employers have been waiting months, if not years and their credit has still not been processed. This delay has created immense hardships for employers, particularly small businesses, who desperately needed the help retaining their employees during the height of the COVID-19 pandemic. To add to the frustration, employers are unable to check the status of their ERTC claims. Not only have such delays defeated the very purpose of the ERTC, but it has added prolonged, and continued financial stress for employers who do not know when their claim will be processed and when they can expect to receive their credit.
“Moreover, insufficient guidance from the IRS has left employers and tax preparers unsure about how to do the right thing by correcting an ERTC claim that was unintentionally filed inaccurately – either with a small, simple mistake, or because they were misled as to whether their business legitimately qualifies for the credit.
“Lastly, ERTC scams and fraud have been increasing. So much so that the IRS has been warning about these schemes since Fall 2022, encouraging businesses to be wary of aggressive ERTC marketing. The IRS noted various warning signs for consulting firms that may be bad actors: unsolicited ads, calls, emails, or texts from an unknown person; statements suggesting that the consultant can determine ERTC eligibility and tax refund estimates within minutes; large upfront fees to assist in determining and filing ERTC claims; and assistance provided under contingency fees that provide the consultant with a percentage of any ERTC-related tax refund. In March 2023, the IRS added widely circulating promoter claims involving ERTC as a new entry in its annual “Dirty Dozen” list of tax scams.
“In addition, some are arguing for an extension for how long employers can claim the ERTC. But here’s the bottom line: Congress did not intend for the ERTC to be used by businesses as a line of capital years after the COVID-19 pandemic ended. The ERTC was meant to help businesses retain employees during the COVID-19 pandemic, which is now over. The focus moving forward should be to eliminate confusion and clear the backlog of legitimate claims for businesses just trying to get the refunds they deserve. At the same time, we need to combat the increasing amount of scams and fraud; and examine ways to improve processes to prevent similar challenges and hardships in the future.
“All of this makes exploring the issue of ERTC worthwhile, and I thank the witnesses for being on today’s panel to help us shed light on this issue.”