Two Republican members of Congress have asked IRS Commissioner Daniel Werfel for more details about how his agency is processing Employee Retention Credit (ERC) claims, three weeks after he  imposed a moratorium on the processing of all ERC claims for the rest of the year in response to a proliferation of fraudulent applications.

The ERC is a refundable tax credit for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or that had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021. The IRS has repeatedly warned businesses and tax-exempt groups to be wary of companies and individuals that falsely tell them that they are eligible for the credit. Those repeated warnings  have not deterred unscrupulous promoters from falsely advertising their ability to obtain the credit for almost anybody.

The IRS continues to process ERC claims received prior to the moratorium, but it noted that increased fraud concerns will mean longer processing times due to enhanced compliance reviews, it said in the Sept. 14 announcement.

“While we appreciate efforts to protect taxpayers from scams, the announced moratorium will exacerbate wait times, worsen the existing backlog of claims, and prevent taxpayers with legitimate claims from receiving payments,” wrote Reps. Jason Smith (R-Mo)., chair of the Committee on Ways and Means, and David Shweikert (R-Ariz.), chair of the Subcommittee on Oversight, on Oct. 2. “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. It is worth noting that despite numerous public issues with the ERTC program, the IRS has yet to engage with Congress to provide potential legislative solutions for taxpayers."

The lawmakers also listed a series of questions to the commissioner that included asking about the speed at which the IRS expects to process its existing claims for the ERC under the current moratorium, what data led the agency to impose the moratorium,  the total amount of refunds processed to date, when the IRS anticipates eliminating the ERC claims backlog, and what prevention measures it plans to take to combat fraud when the moratorium expires in 2024.

The letter pointed out that on July 26, 2023, one day before the Oversight Subcommittee's ERTC hearing, the IRS announced that it had eliminated the ERC claims backlog, but a month later said that 521,000 such claims had yet to be processed.