Opinion: Honest small businesses are paying the price for COVID fraud

A promise made is a promise kept; unless it’s the Employee Retention Tax Credit .

The federal government made a promise to small businesses four years ago: Keep your employees on payroll during a once-in-a-lifetime global pandemic and we’ll reimburse you. In hundreds of thousands of cases, they haven’t.

The IRS has publicly estimated that 10-20 percent of its outstanding Employee Retention Tax Credit claims show a “low risk” of fraud. This means hundreds of thousands of businesses that played by the rules and kept their employees on payroll have yet to receive a penny of their promised dollars. And it’s likely their estimates are low.

These small businesses have waited for months and years — many dating as far back as 2020 and 2021 — for funds they counted on and desperately need. Stories of layoffs, high-interest loans, bankruptcy and closures due to these delays have become all too common.

The failed vote this month on the federal tax bill — which differentiated valid claims from the filings of fraudulent Employee Retention Tax Credit mills — only perpetuates American business owners and their employees’ frustrations, who continue to feel the effects of inaction, despite playing by the rules.

The IRS can significantly decrease the logjam and alleviate this financial strain by processing the consolidated returns of professional employer organizations, which, by definition, have already been subject to additional layers of scrutiny to ensure accuracy and eligibility.

If there is time to cast a spotlight on what makes claims illegitimate — which the IRS did in a release last month — there must also be time to process claims the IRS has found legitimate.

During the ongoing processing moratorium that was supposed to end in January, the agency said it has taken the time needed to differentiate valid claims from the filings of fraudulent mills, set up solely to steal government funds. With the legitimate claims siloed, there is no reason they shouldn’t be promptly and expeditiously processed.

Doing so would relieve public pressure on the IRS and rightfully reward those who acted responsibly to keep employees on payroll amid enormous financial challenges. The trust between small businesses and the federal government has been broken. And Washington is starting to take notice.

National Taxpayer Advocate Erin Collins recently told Congress that the IRS’s processing times need to be accelerated and that processing delays are harming the many taxpayers with valid claims.

Earlier this month, Sen. Tommy Tuberville (R-Ala.) wrote IRS Commissioner Danny Werfel that the circumstances have become “dire” for his state’s small and medium-sized businesses.

Rep. Claudia Tenney (R-NY) also wrote the commissioner, calling processing taxpayer returns and claims the “most basic” feature of the IRS’s job. By not doing so, the odds of laying off hard-working employees or closing doors entirely continue to spike across her district, she added.

Meanwhile, Werfel recently told Congress that the agency is processing between 1,000-2,000 claims per week while it receives 17,000 every seven days. At that rate, the backlog will not only never be cleared, but it will continue to grow.

In that time, your local pharmacy will be forced to raise prices repeatedly after taking out more high-interest loans. The construction firm responsible for your town’s needed road repairs may very well be forced out of business. And your favorite cashier at the grocery store? They, like thousands of others, will be handed their pink slips. The potential ripple effects in towns across America are disconcerting, to say the least.

While we fully support the IRS in its mission to root out fraud, it is imperative the agency moves swiftly to process legitimate claims. The 50,000 low-risk claims the IRS said it will begin processing in September is a start, but that is a drop in the bucket when you consider the scope of its seven-figure backlog.

Our government made a deal with American small business owners. Not being able to police its programs isn’t a good enough reason to penalize those who earned the credit by playing by their rules.

Small businesses did their part. Now it’s time for the government to do its job and quickly process the hundreds of thousands of outstanding, legitimate Employee Retention Tax Credit claims.

Casey Clark is the president and CEO of the National Association of Professional Employer Organizations.

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