The Employee Retention Credit remains one of the best tax benefits for small to medium businesses and tax-exempt entities. The ERC provides eligible employers up to $7,000 per employee per quarter in refundable tax relief for the first three quarters of 2021 and a reduced benefit for 2020. Businesses and tax-exempts can still apply for the ERC on an amended return. However, slow processing of amended returns has meant significant delays in business owners and charities getting much-needed relief checks in their hand. In addition, the limited interaction between the IRS and taxpayers asking about the status of their ERC refund applications has only served to heighten taxpayers’ frustration.
The overall impact is that taxpayers do not 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 the Treasury place on creating tax credits and incentives, equal attention and focus are needed on administering these tax credits and incentives if they are going to be utilized by small and medium businesses. With Congress recently increasing funding for IRS staffing, the Treasury and IRS need to make a priority of taxpayer service, and a good place to start would be with the ERC program.
IRS Processing Of ERC Claims
The Treasury Inspector General for Tax Administration recently issued a report on IRS administration of ERC and other Covid-19 tax relief. The report notes a backlog of 447,435 unprocessed 941-X Forms, although the IRS says that number is now down to 207,000 unprocessed 941-X Forma as of August 31, 2022.
The delay in processing means some business owners have to take funds out of pocket and pay taxes now, while they may wait many months for these pandemic relief funds. Delays are bringing real costs and burdens to small and medium businesses. Adding to the frustration for business owners is not having any sense of timing or update from the IRS on when their ERC payment will be processed and check issued. Business owners and their CPAs should not have to spend hours on the phone to finally get through to talk to someone at the IRS. Further, too often, when they finally speak to an IRS representative, they cannot provide any substantive and useful information about the specific claim and when a check will be issued.
IRS Needs To Focus On Taxpayer Services
With Congress recently emptying the money sacks for IRS staffing – an additional $80 billion over ten years – the Treasury and IRS need to make a priority of taxpayer services and a good place to start would be with the ERC program. The new funds for the IRS have a strong tilt toward enforcement but not nearly enough for taxpayer services. Of the $80 billion in additional money, about 57% of funds are for enforcement, with only 4% for taxpayer services and 6% in new money for business systems modernization.
The Treasury Secretary outlined priorities in a memorandum to the IRS Commissioner, clearing the backlog of filings to be processed, including the ERC; improved taxpayer service; systems modernization; and hiring. The Secretary’s taxpayer service and processing priorities are heartening, although the proposed budget numbers are not balanced to reflect those priorities. The Secretary and Commissioner need to establish clear benchmarks for services to taxpayers and their tax advisors and provide sufficient funds and staffing to meet those goals.
The ERC dollars have been extremely meaningful for many small and medium businesses as well as charities. However, the impact of the difficulties of administration of ERC and processing of amended returns requesting ERC funds should serve as a great caution to Congress since it provides a window to the problems for small and medium businesses when there is no focus on tax administration and providing meaningful taxpayer service. The new funding provides an opportunity to fix these problems and ensure that taxpayer service is of high quality and that processing is done promptly.
Talley’s team of tax professionals provides comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.