On February 15, 2023, the Senate Finance Committee held a hearing to consider the nomination of Daniel Werfel to be the new IRS Commissioner. Supplemental to that hearing, Mr. Werfel responded to a set of questions posed by Senators in writing. Among the questions, four Senators asked about the Employee Retention Credit (ERC). While Mr. Werfel’s answers were predictably unspecific, the questions themselves provide a window into the issues related to the program that have garnered high-profile attention.
Addressing Fraudulent ERC Claims
Senator Mike Crapo (R-ID): “A number of my colleagues and I are concerned about the IRS’s processing of employee retention tax credit (ERTC) claims, and hear from both constituents, stakeholders, and even the local taxpayer advocate that IRS delays in processing these vital payments are harming taxpayers (and tax administration). I also have heard that there have been numerous fraudulent ERTC claims, which are clogging the IRS and leading to significant delays for legitimate claimants. If confirmed, will you provide me within 90 days of being sworn in a detailed response regarding the current backlog of ERTC claims, including a concrete description of what you plan to do to resolve these and address issues of fraudulent claims?”
Daniel Werfel: “Through this nomination process, I have heard from many Senators about the Employee Retention Tax Credit and the impact of delays on small businesses and nonprofits. I understand the importance of ensuring taxpayers receive the tax benefits they are owed and the frustration that delays can cause. If confirmed, I commit to prioritizing this issue and briefing the Committee on what I learn.”
Improvements to ERC Processing Speed
Senator John Cornyn (R-TX): “During the COVID-19 pandemic, Congress created the Employee Retention Tax Credit (ERTC) to support employers who kept their employees working. Numerous Texas small businesses have yet to have their ERTC processed. Many of these businesses have been forced to take extraordinary measures to stay afloat, including layoffs and additional loans. For example, one constituent has been waiting for their ERTC since September 2021. This small business utilizes a third-party payer who submits this business’s ERTC information to the IRS on quarterly payroll tax returns.
“The return filed by the third-party payer shows the aggregate amount of ERTC being claimed by its small business clients, but also includes an attached ‘schedule’ that itemizes the amount of ERTC claimed by each small business. It appears that the IRS may be focusing on the aggregate amount reported rather than using the itemized information to look through each individual ERTC claim to process them faster and get help to small businesses that have been waiting for years in some instances.
“If confirmed, will you commit to making the necessary improvements, including using the itemized ERTC claim information, to deliver the credit that these small businesses are owed?”
Daniel Werfel: “Through this nomination process, I have heard from many Senators about the Employee Retention Tax Credit and the impact of delays on small businesses and nonprofits. I understand the importance of ensuring taxpayers receive the tax benefits they are owed and the frustration that delays can cause. If confirmed, I commit to prioritizing this issue and briefing you and your staff on what I learn.”
Senator Cornyn: “A number of my constituents help support small businesses by facilitating small business payroll, benefits, human resources, tax administration, and many other tasks, which allows small businesses to focus on their core competency, grow, and create more jobs. Unfortunately, it has come to my attention that bureaucratic impediments have led to extended delays in processing the Employee Retention Tax Credit (ERTC) owed to these small businesses. In addition, I have been informed that the IRS has been asked repeatedly about ways they could help speed up the process for small businesses that utilize these third parties. I have previously contacted the IRS on behalf of a number of small business constituents (who utilize a third party) about addressing these obstacles but the response from the IRS was unhelpful. If confirmed, will you commit to reviewing and implementing the necessary measures that will help expedite the processing of ERTC claims for small businesses that use third parties to assist with tax administration?”
Daniel Werfel: “Please see answer to question above.”
Senator Ben Cardin (D-MD): “The Employee Retention Tax Credit (the ERTC) was created by the CARES Act and was extended by subsequent pandemic relief legislation. The goal of this tax credit was to encourage businesses to keep employees on their payroll. As Chairman of the Senate Small Business Committee, I know that the ERTC was vital in helping small businesses across the country retain their workforce and keep their doors open during the pandemic. This credit has been and continues to be essential for the financial health of many. Unfortunately, I have received significant outreach from constituents that the IRS is taking several months to process these businesses’ returns claiming the ERTC, resulting in businesses unable to receive their ERTC in a timely manner. What can the IRS do to help ease the backlog of ERTC claims and ensure a timely delivery of this credit to businesses depending on the ERTC?”
Daniel Werfel: “Through this nomination process, I have heard from many Senators about the Employee Retention Tax Credit and the impact of delays on small businesses and nonprofits. I understand the importance of ensuring taxpayers receive the tax benefits they are owed and the frustration that delays can cause. If confirmed, I commit to prioritizing this issue and briefing you and your staff on what I learn.”
Senator Sherrod Brown (D-OH): “I have heard from small business owners across Ohio who filed for the Employee Retention Tax Credit (ERTC) and have yet to receive their refund. Some have been waiting for more than a year for the funds to which they’re entitled. For many of these small businesses, these payments could mean the difference between remaining open and having to lay off employees, cut back hours, or even close their doors permanently. If confirmed, what steps will you take to address this backlog?”
Daniel Werfel: “Through this nomination process, I have heard from many Senators about the Employee Retention Tax Credit and the impact of delays on small businesses and nonprofits. I understand the importance of ensuring taxpayers receive the tax benefits they are owed and the frustration that delays can cause. If confirmed, I commit to prioritizing this issue and briefing you and your staff on what I learn.”
Increasing the Use of Other Tax Credits
In the following question, Senator Michael Bennet (D-CO) didn’t ask about the ERC, but about several other individual tax credits. Mr. Werfel’s response, in which he includes mention of the ERC, is interesting.
Senator Bennet: “The IRS administers the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), which currently lift 12 million kids out of poverty. But about one fifth of eligible Americans do not claim the EITC. There are many reasons for this, including a lack of awareness about the credit, difficulty filing, or confusion over eligibility. How can the IRS help more eligible families claim the EITC and CTC? Can you commit to setting clear goals for increasing uptake of the EITC and CTC?”
Daniel Werfel: “It is essential that all taxpayers know about and receive the credits, deductions, and other tax incentives for which they are eligible – whether that’s certain individual credits like the CTC and EITC or small businesses who applied for the Employee Retention Tax Credit. Over the last few years, the IRS sent millions of Advance CTC payments and Economic Impact Payments, demonstrating their success in reaching many taxpayers who would not otherwise file a tax return or did not know they were eligible for these new credits. However, I know there is more to do in this space as millions of taxpayers fail to claim tax credits and incentives for which they are eligible. If confirmed, I am committed to raising awareness about existing tax benefits and helping taxpayers learn about the tax benefits they are eligible for and understand how to claim them.”