A national business confederation is working to bring more exposure to a tax incentive being taken off the table for some businesses in Alabama and across the United States.
The Coalition to Preserve American Jobs (CPAJ) is calling attention to and pushing back on the suspension of the Employee Retention Tax Credit (ERC).
The refundable payroll tax break is available to eligible businesses and tax-exempt organizations that were affected during the COVID-19 pandemic or that kept employees on payroll during the economic challenges of the pandemic. The ERC was part of the federal CARES Act and covered up to $26,000 per employee.
The International Revenue Agency (IRS) announced a moratorium on processing new claims for the ERC in September 2023. It still stands in place today.
Ryan Taylor, spokesperson for the CPAJ, said small businesses in Alabama communities, as well as across the country, still need that federal support.
“The pandemic might be over, but the recovery for a lot of these small businesses is not,” he stressed. “The government made these people a promise about keeping their employees on the payroll. ‘We're going to support you and make sure that you get the financial assistance you need.’ The government needs to keep that promise.”
The moratorium from the IRS is currently backlogging 1.4 million applicants, according to the CPAJ, and leaving millions of small businesses in limbo at a time when relief is crucial.
“There was a recent survey done where 70% of small businesses are experiencing a cash crunch. That means that they have four months or less of operating cash on hand,” Taylor explained. “Many small businesses were counting on this money to have come into their coffers so that they could look at ways of expanding the business, hiring new people, buying new equipment, upgrading their facilities. They're not able to make these decisions because the money has not come in yet.”
The CPAJ predicts the ERC moratorium is going to be a factor in 2024 election as presidential candidates drive home their narratives on the economy. This, as the coalition reports the pause and/or delay are key issues for many small businesses.
“It's a huge impediment, not just their economic stability and being able to keep the doors open, but to look toward expansion and future growth,” said Taylor.
The IRS chalks up the moratorium to concerns from inside the tax agency and from tax professionals that a substantial share of new claims are ineligible. The federal revenue service also reports ERC claims are increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.
"The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in," said IRS Commissioner Danny Werfel when the moratorium was first announced. "The further we get from the pandemic, the further we see the good intentions of this important program abused."
Back in June, the IRS announced compliance efforts around erroneous ERC claims topped more than $2 billion with efforts still ongoing to counter questionable claims pushed by aggressive marketing, including an aggressive push on claims made for 2021. The agency reports this was done in part by the implementation of the ERC Voluntary Disclosure Program (VDP) and the ongoing claim withdrawal process for those with unprocessed ERC claims.
“We are encouraged by the results so far of our initiatives designed to help misled businesses, and the IRS will continue our broader compliance work given the aggressive marketing we’ve seen with this credit,” said Werfel in a press release.
But Taylor and the CPAJ are pushing back on the moratorium, opposing the IRS prioritizing the denial of what are being billed as risky claims in lieu of helping claims with minimal risks.
“We want waste, fraud and abuse being rooted out of the system. We don't want taxpayer dollars going to fraudulent claims, but rather than letting those types of high-risk claims languish in the system, they're letting the low risk, very legitimate claims languish,” Taylor explained. “We don't understand that prioritization and are pushing for the IRS to reconsider and start pushing out the legitimate claims.”
The CPAJ is not alone in the effort to once again allow new ERC claims. Werfel’s predecessor, IRS Commissioner Chuck Rettig, said, “The already identified low-risk ERC claims, submitted by struggling small businesses, should be approved and paid immediately,” when talking to POLITICO.
Members of Congress are also starting to take notice and ask questions. Back in June, Senator Tommy Tuberville (R-AL) and Congresswoman Claudia Tenney (R-NY) both wrote letters to IRS Commissioner Werfel, asking him to lift the moratorium and process the backlog of claims. The CPAJ is now calling on U.S. Rep. Terri Sewell (AL-07) to also take action.
"We've got a good champion in Senator Tuberville. Certainly, Congresswoman Sewell, we would love for her support in this as well," Taylor expressed. "We're hoping Congress will look more into this issue and get the get the IRS to work."
More on the Employee Retention Tax Credit can be found on the IRS website, while information on the Coalition to Preserve American Jobs can be found here.
