The Employee Retention Credit (ERC) continues to be one of the best tax benefits out there for small and medium-sized businesses — as well as tax-exempt entities — for keeping doors open and employees on payroll during this tough economy. As I wrote in detail earlier, the ERC offers eligible employers up to $7,000 per employee per quarter in refundable tax credit for the first three quarters of 2021 (and a reduced benefit for 2020). Companies and exempt persons can still apply for the ERC on an amended declaration.
However, the administration of the ERC program by the IRS — and especially those claimed on altered returns — should serve as a warning to Congress and the Treasury. Slow processing of amended returns has resulted in significant delays for businesses and charities getting their hands on much-needed relief checks. In addition, the limited interaction between the IRS and taxpayers inquiring about the status of their ERC refund applications has only increased taxpayers’ frustration. The overall impact is that taxpayers fail to realize the benefits of ERC in a timely manner. The delays are even discouraging some eligible taxpayers from even taking the ERC. As much attention and focus Congress and Treasury puts into creating tax credits and incentives, as much thought and attention is needed in managing these tax credits and incentives as they will be used by small and medium-sized businesses.
Now that Congress has recently emptied the money bags for IRS personnel — an additional $80 billion over ten years — the Treasury and the IRS should make it a priority of the IRS and a good place to start would be with the ERC program.
Where’s my check? – IRS processing of ERC claims (especially amended returns)
The Inspector General of the Tax and Customs Administration (TIGT .)
Speaking to my colleagues at alliantgroup who have helped thousands of companies qualify for the ERC, the delays in processing are deeply frustrating for business owners and charities. The delay — given the requirement to reduce deductions (280C) on federal income tax returns — means some business owners will have to take money out of pocket and pay taxes now, while potentially waiting many months for these pandemic relief funds. Delays bring real costs and burdens to small and medium-sized businesses – the engine of jobs and growth in this country. I’m sure these lengthy delays are not what Congress intended when they issued the press releases applauding the ERC’s passage.
The frustration for business owners is that they have no idea of timing or updates from the IRS on when their ERC payment will be processed and the check issued. There also doesn’t seem to be a rhyme or reason about which returns are processed when. Business owners and their CPAs shouldn’t have to spend hours on the phone to finally talk to someone at the IRS. Further, too often when they finally talk to an IRS representative, the IRS staff are unable to provide substantive and helpful information about the specific claim and when a check will be issued. The IRS’s standard response, “It’s been received and awaiting processing” doesn’t bring mudville any joy.
I recognize and appreciate that the IRS is struggling with last-minute (multiple) changes to tax laws, as well as outdated systems and personnel challenges – but Congress has now provided $80 billion. Improvements in the service and processing of taxpayers must be made and these must be given the highest priority.
IRS should focus on taxpayer services
The $80 billion in new funds for the IRS has a strong propensity for enforcement and not nearly enough for tax authorities (let alone safeguarding and protecting taxpayers’ rights). Of the $80 billion in additional money (on top of current spending estimated at $150 billion over ten years) – $45.6 billion is for enforcement, with only $3.2 billion for tax authorities and $4.8 billion in new money for the modernization of business systems.
Finance Minister Yellen in a memorandum to IRS Commissioner Rettig outlined priorities – which the media in particular have emphasized – clearing the backlog of filings to be processed (including the ERC); improved tax administration; modernization of systems; and hiring (the IRS has two challenges here – replacing the significant number of IRS employees available to retire, as well as its stated goal of increasing the total number of IRS employees – all in a very tight job market for tax professionals).
The Minister’s priorities for taxpayer services and processing are encouraging, but I would caution that the proposed budget figures (as noted above) are not balanced to reflect those priorities. The secretary and commissioner should set clear benchmarks for services to taxpayers and their tax advisors (the CPAs; accountants; registered agents who play such a critical role in helping taxpayers through the tax system) – then make the funds and staff available sufficient to meet those goals.
The ERC dollars have been of great significance to many small and medium-sized businesses and charities. Congress can rightly be pleased with the results of tax policy. However, the impact of the difficulties in managing the ERC and processing amended returns requesting ERC funds should come as a major warning to Congress, as it provides a window into the problems for small and medium-sized businesses when there is no attention to tax administration and the provision of top service for the taxpayer. The new funding provides an opportunity to resolve these issues and ensure high quality service to taxpayers and completion of processing in a timely manner. Congress must ensure that the IRS and the Treasury focus on these priorities.