Oh that Employee Retention Tax Credit thing again?
Earlier this year, we wrote about how it was like déjà vu all over again with the ERTC causing Professional Employer Organizations (PEOs) problems for the past four years. And there’s still no end in sight!
The ERTC was established as part of the 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act). It was created with the best of intentions—to keep people employed and small businesses afloat during COVID-19. It was a great idea. After all, the pandemic led to an estimated 200,000 additional business closures in the first year of the outbreak, so protecting small and medium-sized businesses became paramount.
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Unfortunately, good intentions with government programs sometimes bring unintended outcomes such as what has happened with the Medicare improper payment numbers. The ERTC might not be on that scale, but too many scammers are causing too many problems with the ERTC and businesses are not getting the attention they need—especially PEOs—when they have submitted legitimate claims.
Casey Clark, the president and CEO of the National Association of Professional Organizations (NAPEO), recently wrote an editorial titled “Honest Small Businesses Are Paying the Price for COVID Fraud.” IRS Commissioner Darry Werfel, Clark wrote, “recently told Congress that the agency is processing between 1,000-2,000 claims per week while it receives 17,000 every seven days. At that rate, the backlog will not only never be cleared, but it will continue to grow.”
It’s kind of like donating an old sweater to clear out your closet but buying three more on Amazon the next day.
According to the IRS, it has already investigated 460 ERTC cases with up to $7 billion in fraudulent claims. So the pain continues for many PEOs trying to get reimbursement.
Opening the Window
On Aug. 15, the IRS reopened a window for the Voluntary Disclosure Program for the ERTC. This means that through Nov. 22, businesses will have a second opportunity to correct an improper payment at a 15% discount. This, the IRS said, will help those businesses avoid future penalties. This is the second time the IRS has done this. The first time, the IRS received 2,600 applications that included over $1 billion worth of “errant claims.”
In a written statement, Werfel explained: “The push by promoters flooded the IRS with questionable ERC claims, which clogged our systems and slowed work.” He added, “We recognize well-meaning businesses are caught up in this, and we are taking important steps to help them. This includes reopening the Voluntary Disclosure Program as well as getting more payments out to qualifying businesses.”
Those well-meaning businesses include PEOs, of course. So maybe the window will crack open for them to get reimbursed?
The Good News?
The IRS recently sent out 28,000 disallowance letters to businesses that had claims that had a high probability of being incorrect. On the other hand, the IRS also identified 50,000 valid ERTC claims. That means that, as of late August 2024, payments could be going out to businesses in the “low-risk group” soon.
In data provided in the 2023 National Taxpayer Advocate Annual Report to Congress, the most recent available, the IRS said there were about 1 million open ERTC claims in the backlog. It has since grown to 1.4 million as of June 2024.
Is this the end of the ERTC story? Unfortunately not. It’s the “gift” that keeps on not giving but we join you in advocating for this to get resolved soon so you receive the payments you need to best serve your clients.
