The Tax Relief for American Families and Workers Act of 2024, H.R. 7024, was approved by the House Ways and Means Committee on Jan. 19, 2004. It contains a number of retroactive provisions affecting the 2024 filing season, and Congress hopes to have it ready for the president's signature prior to the beginning of filing season on Jan. 29.
The bill contains a number of taxpayer-friendly provisions, including an increase in the Child Tax Credit, delays in the requirement to deduct R&D expenditures over a five-year period, extension of 100% bonus depreciation through 2025, and an increase in the Section 179 deduction limitation.
Both houses of Congress support the bill. The "pay-fors" involve cutting short the period to claim the Employee Retention Credit and increasing penalties on fraudulent claims. The Joint Committee on Taxation estimates the bill would save taxpayers over $70 billion by cutting the "rampant fraud" associated with ERC claims.
"Our focus is on enforcement issues, since that is the IRS flavor of the day," said Caplin & Drysdale member Niles Elber. "It will help balance or offset the benefits in the rest of the bill. As of Sept. 28, 2023, the IRS had processed more than 3.5 million Form 941 payroll tax returns for the ERC."
When the ERC was originally created, the Congressional Budget Office projected it would cost taxpayers $55 billion. But as of July 2023, the IRS had distributed an estimated $230 billion, and counting. The tax authority reported in October 2023 that it had received approximately 3.6 million claims, up from 2.5 million in July 2023 — an increase of 1.1 million in new claims over just 11 weeks.
"They ramped up the aiding and abetting penalty to 75% of the fee," Elber remarked. "If a promoter fits the term 'COVID-ERTC promoter,' the penalty is increased to the greater of $200,000 (or $10,000 in the case of a natural person) or 75% of the gross income derived by the promoter from providing aid, assistance or advice.
"If you are in the business of assisting employers, you are a promoter, and are subject to any of the new penalties or changes," he continued. "People assisting in filing a COVID document such as an amended Form 941 fit this category. Section 6695(g) doesn't speak to the ERC, so the IRS will have to come up with some due diligence standard. How could anyone possibly comply with such a standard when they engaged in an activity two or three years ago? It's frustrating with the way the ERC has played out. It will be tremendously difficult to enforce, and the government will ultimately inherit any of the loss."
The bill is not likely to pass as stand-alone legislation, according to Elber: "It will very likely be attached to some other piece of legislation," he said. "Given the current House and Senate schedules, it's hard to see how they will pass this by the beginning of filing season."
Nevertheless, given the likelihood of retroactive effect, employers that believe they have a legitimate ERC claim should plan to get them in immediately by Jan. 31, 2024.
