Is IRS being dishonest in the name of fighting scams?
There is an old saying in Washington. No, not the one about getting a dog. ‘The government is good at two things — doing nothing and overreacting.’
The Internal Revenue Service is doing the latter: overreacting, regarding allegations of inappropriate payments in the Employee Retention Credit program. The IRS is unfairly trying to limit access to the ERC refundable tax credit, which was enacted to buttress businesses harmed during the COVID-19 pandemic and resulting shutdowns.
In the name of combating bad actors, the IRS may be perpetuating a fiction on the American people and small businesses that all the businesses in the ERC space are a problem.
There is little doubt Congress crafted the law in 2020, which created the ERC, the bipartisan $2 trillion Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, with the intent of putting the economy back on track. The goal was to deliver money to citizens and small businesses in financial need quickly and without unnecessary limits. Remember, the government shut down small businesses during the pandemic and harmed them.
The CARES Act had nearly unanimous support on Capitol Hill and the endorsement of the Trump administration. Businesses in need should have the same access to the program as originally promised when the tax credit was created.
Today, the IRS is slow-walking the payment of claims, which now take months, as well as creating new limits not found in the original legislation signed into law by then-President Donald Trump.
With the creation of the tax credit, the Trump administration was not shy to broadcast the existence and broad nature of the program to help struggling businesses. Then-Treasury Secretary Steven Mnuchin stated on March 31, 2020, that “we encourage businesses to take full advantage of the Employee Retention Credit. This new credit is available to all employers, regardless of size of business, and covers up to 50 percent of up to $10,000 in wages.”
The intent was clear that this would be a broad program and open to all affected by the government-ordered shutdown.
The Biden administration continued to be supportive of the credit upon taking office. On May 10, 2021, the White House bragged about the success of the ERC and stated: “While more than 30,000 small businesses have already claimed more than $1 billion in ERCs this year, the Biden-Harris Administration is working to increase awareness of and participation in this beneficial program.”
The administration promoted the ERC and “other efforts [to] help businesses bring employees back sooner and keep them on the job as the economy recovers.” Now, bureaucrats at the IRS, under this same administration, are trying to decrease participation in this “beneficial program.”
This act by the IRS is harmful to the economy at large. Small businesses are the engine that fuels the U.S. economy. According to Small Business Administration statistics compiled for 2022, there are 32.2 million small businesses, which account for 99.9% of all businesses. There are 61.7 million small-business employees in the U.S., who account for 46.4% of domestic employees.
These numbers show the importance of small businesses and the folly of preventing them from recovering from the economic turbulence of the pandemic shutdowns.
The CARES Act was beneficial for most, yet it was targeted for scams by a few bad apples. The IRS is treating all small businesses as presumed guilty of deception.
This attitude reflects a terrible disdain by federal bureaucrats for the work being done to get small businesses whole and operational again. Small percentages of inappropriate payments in the program should not serve as a pretext to shut off the entirety of a program for small businesses in need that legitimately qualify for the ERC.
The IRS is not allowed to change the law without going through the legislative process. The IRS deals with pilfering every day.
Pat Cleary, chief executive of the National Association of Professional Employer Organizations, was quoted in The Wall Street Journal on Sept. 5 as arguing that “it is an occupational hazard for the IRS to deal with fraud. They are using this as a shield against paying companies what they are entitled to.”
In addition to slow-walking payments, the IRS claims companies can’t use the ERC “based on supply-chain disruptions.” These acts run contrary to the intent of Congress and multiple administrations.
In other words, the IRS defies the will of Congress and the letter of the law when they try to create new qualifications, using unconstitutional means, regarding who can receive the tax credit.
Pulling the rug out from under small businesses that, by law, have access to the ERC is wrong and should end.
• Peter Mihalick is former legislative director and counsel to former Reps. Barbara Comstock, Virginia Republican, and Rodney Blum, Iowa Republican.