Senator J.D. Vance (R – Ohio) authored an op-ed published in today’s Wall Street Journal calling out the IRS for its poor performance serving small businesses.
Vance writes:
“For thousands of small businesses, the IRS hasn’t only failed to change its ways, it’s gotten worse. Millions in promised tax relief from the Employee Retention Credit, or ERC, has yet to be processed—while the threat of enforcement and the challenge of compliance grow. The ERC was drawn up by Congress during the height of the Covid pandemic as businesses closed and sent their workers home. In an effort to protect payrolls and avert mass layoffs, the Cares Act included the refundable tax credit, which compensated businesses for pandemic-related losses and wages paid to employees. Eligible businesses could claim up to $5,000 an employee.
The ERC was a pragmatic policy with a sensible goal. Congress was right to relieve the tax burden on small businesses as they bore the brunt of government-mandated lockdowns. But even Washington’s best efforts ran into a roadblock: the IRS. The agency is buried under more than half a million unprocessed ERC tax forms submitted by businesses across the country.“
Vance notes that even after congressional Democrats and President Biden supersized the IRS with $80 billion (an amount even Obama-era IRS chief John Koskinen said was too much) the agency has no sense of urgency when it comes to processing small business tax credit claims:
“You would think that an agency with an influx of new resources could process these forms and provide businesses with long-overdue tax relief. You would be wrong. Progress has been slow. Rather than processing claims and getting money out the door, the IRS discouraged taxpayers from claiming the credit. Proactive outreach has been limited to press releases and notices that few small business owners would see. If that weren’t enough of an insult, Commissioner Daniel Werfel falsely claimed last month that the agency had cleared its ERC backlog.“
Vance also calls out the IRS for a general lack of focus:
“It’s a microcosm of what’s wrong with the IRS and Washington. In too many cases, the federal government suffers not from a lack of capacity, but from a lack of focus. Even with all the necessary resources, an agency with multiple priorities and competing incentives will struggle to accomplish anything good.“
Vance is right. The agency needs to get to work on clearing this backlog immediately.
The Treasury Inspector General for Tax Administration has published numerous audits this summer showing the IRS is failing in several critical areas such as failing to safeguard private taxpayer files, failing three out of five cybersecurity functions, and accidentally declaring tens of thousands of living taxpayers as “dead.”
The agency also repeatedly fails to notify taxpayers when their private tax files have been lost during shipment (paper files and digital files stored on data cartridges) between IRS facilities. Why? Because employees can’t be bothered to fill out a basic required form detailing the contents of shipped parcels.
The agency has yet to explain why it physically destroyed 30 million active documents submitted by taxpayers attempting to meet their tax obligations. And after two years, there is still no explanation for how thousands of Americans had their entire IRS files and audit history packaged up and presented on a platter to a progressive news organization pining for higher taxes.
Meanwhile the IRS is chasing projects it has no business getting involved in, such as its attempt to enter the tax preparation software business in a major conflict of interest: the IRS seeks to become tax collector, tax preparer, and tax auditor.
But the IRS hasn’t even cleared the small business tax credit backlog. It’s time to get focused as Sen. Vance has written. The Vance op-ed can be accessed here.