Republicans press IRS on ERC backlog and fraud

GOP members of Congress are demanding answers from the Internal Revenue Service about the backlog in processing claims for the Employee Retention Credit, only weeks after the IRS imposed a moratorium on new claims for the tax credit amid a surge of fraudulent claims.

In mid-September, IRS Commissioner Daniel Werfel announced an immediate stop to processing of new claims for the ERC through the end of the year after the IRS was hit by a flood of hundreds of thousands of claims this year (see story). Much of the demand has come from so-called "ERC mills" run by shady promoters who widely advertise the continuing availability of the pandemic tax breaks by filing amended tax returns. The credits are supposed to be available to employers who retained employees from 2020 through the third quarter of 2021. 

On Tuesday, House Ways and Means Committee chairman Jason Smith, R-Missouri, and Ways and Means Oversight Subcommittee chairman David Schweikert, R-Arizona, sent a letter to Werfel asking how the IRS will deal with the level of fraud within the program during its current moratorium on the processing of new claims, and what legislative proposals it would like Congress to take to address fraud within the program generally. They also asked about the speed at which the IRS expects to process its existing claims for the ERC under the current moratorium and how the IRS will ensure that's done in a timely manner. They also want to know what data led the agency to impose a moratorium, the total amount of refunds processed to date, and when the IRS anticipates it will eliminate the ERC claims backlog.

Andrew Harrer/Bloomberg

"While we appreciate efforts to protect taxpayers from scams, the announced moratorium will exacerbate wait times, worsen the existing backlog of claims, and prevent taxpayers with legitimate claims from receiving payments," Smith and Schweikert wrote. "For a program that has been plagued with a prolonged backlog, it remains to be seen what changes will be made during the moratorium to improve vetting measures for fraudulent claims while also making the processing time more efficient to lessen the backlog. It is worth noting that despite numerous public issues with the ERTC program, the IRS has yet to engage with Congress to provide potential legislative solutions for taxpayers."

They noted that on July 26, the day before the Oversight Subcommittee held a hearing on the ERC, the IRS issued a press release claiming that the backlog of valid claims had been cleared, even though the IRS's own website said that as of late July, there were still nearly 500,000 Forms 941-X that needed to be processed, and as of Aug. 16, 2023, the figure increased to approximately 521,000.