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House Republicans push IRS for answers on processing pause for small business tax credit

Rep. Jason Smith, R-Mo., speaks during a House Oversight and Accountability Committee impeachment inquiry hearing into U.S. President Joe Biden on Sept. 28, 2023.

Jonathan Ernst | Reuters

House Republicans are pressing the IRS for answers after the agency paused processing recent claims for a pandemic-era small business tax break.

Lawmakers voiced “continued concerns” in regards to the worker retention credit, or ERC, which was enacted to support small businesses throughout the Covid-19 pandemic. Worth 1000’s per worker, the credit sparked a flood of amended returns, lots of which were wrongly filed after bad advice from specialist firms.

In a letter to the IRS on Tuesday, House Ways and Means Committee chair Jason Smith, R-Mo., and Oversight Subcommittee chair David Schweikert, R-Ariz., asked for updates on the backlog of unprocessed ERC claims.

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“For a program that has been plagued with a chronic backlog, it stays to be seen what changes will probably be made throughout the moratorium to enhance vetting measures for fraudulent claims while also making the processing time more efficient to minimize the backlog,” they wrote.

The letter asked several questions on the ERC program, including the variety of unprocessed claims, a timeline to clear the backlog, plans to enhance processing for legitimate filings and more.

The IRS didn’t immediately reply to CNBC’s request for comment.

The backlog of unprocessed ERC claims

As of Sept. 27, the full inventory of unprocessed Forms 941-X, used to amend an employer’s quarterly federal tax returns, was roughly 779,000, in keeping with the IRS.

However, the ERC claim backlog could also be significantly higher attributable to skilled employer organizations, or PEOs, which offer payroll advantages and other HR services. A single PEO claim can represent many small businesses, in keeping with Pat Cleary, president and CEO of the National Association of Professional Employer Organizations, who testified at a House hearing in July.

“This has been the Hundred Years’ War for us,” Cleary told CNBC. “There’s a ton of small businesses waiting for money.”

The IRS in July said it slowed processing returns with ERC claims attributable to the “complexity of the amended returns” and the uptick of firms that lured ineligible small businesses to say the credit.

“The IRS knows who we’re,” said Cleary, who urged the agency to interrupt out PEO claims from the backlog of questionable claims. “Those are established businesses with long-term relationships.”

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