| 12/28/2023
Hundreds of thousands of small businesses remain at risk of layoffs or closure despite the Internal Revenue Service's assertion that the backlog of Employee Retention Tax Credit (ERTC) claims has been cleared, the National Association of Professional Employer Organizations (NAPEO) told lawmakers Thursday.
Speaking before the House Ways and Means Committee's Oversight Subcommittee, NAPEO President and CEO Pat Cleary warned that the backlog of ERTC claims remain on the rise, despite a July 26 announcement from IRS Commissioner Daniel Werfel that the backlog has been cleared.
"They're entitled to their own opinion, not their own facts," said Cleary, noting that the most recent figures from the IRS show there are still 488,000 outstanding ERTC claims – 114,000 higher than a month prior.
Cleary also noted that the problem is much bigger than the numbers indicate. Many claims are filed on an aggregate basis, meaning multiple small business claims are filed together in the same form. The IRS counts aggregate filers as only one case, when in fact there could be hundreds or thousands of businesses on a single form. He pushed the IRS to dedicate additional resources to processing ERTC claims until all older claims filed from 2020-2022 are completely processed and resolved. Panel members committed to follow up on this with the commissioner.
"We urge you to continue to focus on resolving this logjam at the IRS until every single small business has received the ERTC funds they deserve - and that they so desperately need," Cleary told lawmakers, noting that NAPEO had created a website (ertcdelayshurtsmallbiz.com) with scores of testimonials from small businesses severely impacted by the delays. "Don't think of these as mere numbers. These are businesses. These are people."
Congress enacted the ERTC in March 2020 as part of the CARES Act to encourage businesses to keep employees on the payroll during the COVID-19 pandemic. Despite lawmakers' intent that the ERTC provide immediate tax relief to employers experiencing financial harm during the pandemic, tens of thousands of employers are still waiting for the IRS to process their ERTC claims. These businesses have laid off employees, shuttered facilities, and taken on high interest loans as they wait just to stay afloat.
Rep. Claudia Tenney (R-NY), a small business owner herself, disagreed with Werfel, noting that this backlog is far from cleared.
"I wish the IRS would come out and say there are a half million claims still outstanding," Tenney said. "This is real money. We have low margins as small businesses."
Rep. Beth Van Duyne (R-TX), an outspoken advocate for small businesses, presented a chart showing the true scope of the backlog, which rose as high as 1,000,000 claims in April before Werfel was called to testify before Van Duyne and the full House Ways and Means Committee that month. Only then was the backlog cut by more than half after the IRS dedicated additional staff to the clear the ERTC. Werfel said Wednesday that staff was being taken off the ERTC.
"Our request today is the IRS keep that surge in place until that backlog hits zero," Cleary told lawmakers.
NAPEO recently surveyed 43 of its members and found among just those respondents —a small sampling— that nearly 18,000 small business clients are still waiting for the IRS to approve at least $3 billion in ERTC credits that were filed before 2023.
NAPEO's grassroots campaign to urge action on clearing the backlog of ERTC claims has generated more than 1,800 letters from PEOs and their clients to Congress detailing the very real consequences of the processing delays. Excerpts from these letters can be found on ertcdelayshurtsmallbiz.com.
The IRS' delays in processing ERTC claims have also led to the rise of so-called "ERTC mills" that prey on small businesses and have collectively defrauded them out of millions of dollars. Cleary stressed that the easiest way to end the mills – which advertise heavily on television and radio - is by clearing the ERTC backlog.
Evan Fallor
(914) 589-7504
efallor@napeo.org