The Internal Revenue Service (IRS) has shifted policy to eliminate the Employee Retention Credit (ERC) backlog and eliminate fraudulent claims. In a July 26 press release, the IRS reported the backlog of claims has been cleared but this was not the experience reported in testimonies at the July 27 U.S. House Committee on Ways and Means Oversight Subcommittee hearing. The committee took testimony on the backlog of ERC processing, the IRS response to inquiries about ERC credits, and the impact of fraud on those legitimately trying to claim the credit.

Four witnesses testified, including two certified public accountants who have assisted employers with their applications for the tax credit, the head of the National Association of Professional Employer Organizations, and the New Jersey Center for Nonprofits president and CEO. Many committee members noted that they have heard from numerous small businesses in their districts about ERC confusion and the extensive IRS backlog in processing these claims.

The committee sought recommendations on how to address fraudulent “ERC mills” that were promising businesses that they were ERC-eligible, and how to get appropriate education and support to help submit claims forms for the credit. Some panelists also noted that small businesses may have been misled by the “ERC mills” and would like to return the money or correct applications, but there is no process for this. Tax experts who testified at the hearing suggested that there should be some sort of time-limited amnesty opportunity for well-intended businesses to avoid paying penalties or other actions.

No legislative proposals were offered at the hearing, but many committee members made it clear that the IRS needs to act now to process the backlog of ERC claims, provide additional clarifying guidance related to eligibility, and create a process for erroneous claims to be remedied.

For more information on ERC, view our IRS Employee Retention Credit (ERC) FAQs and the Employee Retention Credit Resource.