House Republicans push IRS for answers on employee retention tax credit

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

Lawmakers voiced “continued concerns” about the employee retention credit, or ERC, which was enacted to support small businesses during the Covid-19 pandemic. Worth thousands per employee, the credit sparked a flood of amended returns, many 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.

“For a program that has been plagued with a prolonged backlog, it remains to be seen what changes will be made during the moratorium to improve vetting measures for fraudulent claims while also making the processing time more efficient to lessen the backlog,” they wrote.

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

The IRS did not immediately respond to CNBC’s request for comment.

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

However, the ERC claim backlog may be significantly higher due to professional employer organizations, or PEOs, which provide payroll benefits and other HR services. A single PEO claim can represent many small businesses, according to 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 due to the “complexity of the amended returns” and the uptick of companies that lured ineligible small businesses to claim the credit.

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