The U.S. House of Representatives Committee on Ways and Means has requested that IRS Commissioner Daniel Werfel provide answers to 10 questions regarding employee retention credit (ERC) processes. The request comes after the IRS announced a temporary moratorium on the processing of any new ERC claims due to the high volume of scams surrounding the credit (see IRS Hits the Pause Button on New ERC Claims Until At Least December 31, 09/15/2023).
During the COVID-19 pandemic, the federal government enacted legislation to help both employers and employees. Some of these provisions included tax credits, such as the ERC. The ERC is reported on Form 941, Employer’s Quarterly Federal Tax Return, and amendments or corrections to previously filed Forms 941 are accomplished by filing Form 941 -X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.
The credit was available to eligible employers that paid qualified wages to some or all employees after March 12, 2020 and before January 1, 2022. Although the date to claim the credit has passed, employers are still able to adjust or correct a prior quarterly federal tax return with Form 941-X. In general, the deadline for filing a Form 941-X to claim the ERC is April 15, 2024 for 2020 tax periods and April 15, 2025 for 2021 tax periods.
However, Form 941-X can only be filed on paper. There is no electronic filing option. For this and staffing, resources, and fraud the IRS has an ongoing backlog of Forms 941-X. As of September 27, 2023, the IRS had a backlog of 779,000 Forms 941-X. The IRS notes that some of these forms cannot be processed until the corresponding Form 941 is processed.
The ongoing issue of fraud prompted the IRS to announce a moratorium on the processing of new ERC claims through the end of this year to allow the Service to add more safeguards to prevent future abuse and protect businesses from predatory tactics.
In response to the IRS directive, the Ways and Means Committee sent a letter to Commissioner Werfel to highlight continued concerns around the ERC and ask that the IRS provide the Committee with its plan to resolve the backlog of unprocessed ERC claims and prevent fraud.
The letter criticizes the moratorium and claims that such an action “will exacerbate wait times, worsen the existing backlog of claims, and prevent taxpayers with legitimate claims from receiving payments.” The letter also notes that the IRS has not yet engaged with Congress to provide potential legislative solutions for taxpayers. In addition, the letter calls into question the IRS’s prior claims that the ERC backlog of all valid claims has been cleared, despite the backlog of hundreds of thousands of Forms 941-X.
The letter closes by requesting Commissioner Werfel provide answers to the following 10 questions by October 17, 2023:
- What steps the IRS will take to ensure legitimate ERC claims filed before the September 14, 2023 moratorium are processed in a reasonable amount of time?
- How fast will existing ERC claims be processed under the moratorium?
- What data points led to the implementation of the moratorium?
- What is the most up-to-date total dollar figure of ERC refunds that have been processed?
- How many professional employer organization (PEO) claims, which the IRS counts as only one claim, are there?
- When does the IRS expect to eliminate the entire backlog of ERC claims?
- What steps will be taken to expedite processing times of legitimate ERC claims filed during the moratorium?
- What fraud prevention measures will the IRS take during the moratorium to help combat fraud when the moratorium ends?
- What legislative proposal is the IRS considering to address ERC fraud and when will it be shared with Congress?
- Is the IRS considering a “status-check” portal for applicants to receive up-to-date information regarding their ERC claims?
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