Written Testimony of Alicia Chapman, Willamette Technical Fabricators — Tackling Tax Complexity, June 5, 2023

Summary

Written testimony dated June 5, 2023 from Alicia Chapman, owner and CEO of Willamette Technical Fabricators in Portland, Oregon, to Chair Wyden, Chair Cardin and members of the Senate Committee on Finance and Senate Committee on Small Business and Entrepreneurship for the Tackling Tax Complexity roundtable. The testimony describes the company as a certified woman- and minority-owned metal manufacturer with over 40 employees and a Department of Energy SBIR grant. It states that the company filed an extension on its 2022 business tax return while awaiting IRS guidance on Section 174 amortization of research expenditures. It also describes waiting over eight months for more than $125,000 in Employee Retention Credits and states that IRS delays have caused a cash flow crisis and added borrowing and tax preparation costs.

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                                                                                   June 05, 2023

Chair Ron Wyden and Ben Chair Cardin
United States Senate
Washington, D.C. 20510

Re: Tackling Tax Complexity: the Small Business Perspective


Dear Chair Wyden, Chair Cardin, and members of the Senate Committee on Finance and Senate
Committee on Small Business and Entrepreneurship:

        Thank you for the opportunity to provide written testimony and participate in the
Tackling Tax Complexity roundtable. My name is Alicia Chapman, and I am the owner and CEO
of Willamette Technical Fabricators, based in Portland, Oregon.
        My company is certified by the Small Business Administration (SBA) and in our home
states of Oregon and Washington as an economically disadvantaged woman- and
minority-owned small business. We specialize in custom complex metal manufacturing, focused
on transportation and clean energy infrastructure such as bridges and hydropower dams. We have
grown rapidly and provided high-skill, high-demand, family-wage jobs to over 40 employees,
avoiding layoffs through the pandemic and more recent recession concerns. In spite of our
success, we are currently at a crossroads, in large part due to excessive delays within the IRS.
        Willamette Technical Fabricators has conducted substantial research and development
(R&D) throughout our startup years, and we were recently awarded a Small Business Innovation
Research (SBIR) grant from the Department of Energy to develop proprietary robotic welding
technology that will improve American competitiveness and help our nation become more
resilient and energy-independent. Unfortunately we have been unable to finalize our 2022
business tax return and were forced to file for an extension while we await updated IRS guidance
on capitalization and amortization of Section 174 for research and experimental expenditures.
We are already struggling with the updated requirement for the first time in 70 years to amortize
these investments over time, instead of being able to immediately deduct our R&D expenses.
This is a stark contrast to the 200% R&D deduction provided to our Chinese competitors by their
own government. But while we anxiously await the passage of legislation that would address this
gap, the delayed guidance is holding up hundreds of thousands of dollars in tax credits and
refunds that we need to continue to innovate and invest in workforce development.
         In addition to R&D credits, my business qualifies for over $125,000 in Employee
Retention Credits (ERC) for maintaining and expanding our workforce through the pandemic.
We have been waiting on that payroll tax refund for over eight months now. When we’ve been
able to get through to someone at the IRS, which is rare, they have informed us that processing
of ERC refunds is taking up to 160 days, unless there are any delays, in which case it could take
much longer. Unfortunately no one has been able to clarify what might constitute a delay, or
offered any suggestions for steps we could take to help expedite the process. With so many
taxpayers, especially small businesses, hoping to take advantage of the ERC program, our
accountants have told me that they have been seeing long wait and processing periods for all of
their clients, and I have heard from many of our partners that this is sadly the norm. I cannot go a
day without getting a call from a blocked number for someone promising to help me get my ERC
refund faster, or offering to provide a predatory loan against it, because this has become such a
pervasive problem.
         Finally, in what I assume was an effort to supplement qualified IRS agents with artificial
intelligence, earlier this year I received proposed corrections to my already accepted 2020
personal tax return, related to a 401k distribution I was able to take via the CARES Act to invest
in startup costs for my business without the usual early distribution penalties. I provided
clarifying documentation and verified my eligibility under CARES Act Section 2022 within a
few days of receiving an unexpected bill from the IRS for these erroneous corrections, but it took
months to get a response, and then it was only that the information was still being processed.
Until this issue is resolved, the IRS is withholding a refund of over twenty thousand dollars for
my 2021 personal tax return, which I have also been waiting on for over eight months. The
agents I have spoken to about this have all apologized that they are incredibly short-staffed and
dealing with an immense backlog. This refund is money that I would have undoubtedly
reinvested in my business, like so many small business owners who are the first line of defense
when their companies need a short-term loan.
         While we wait for 2021 refunds and the long-overdue guidance from the IRS delaying
even greater 2022 refunds, we are essentially financing the federal government for hundreds of
thousands of dollars that we have to borrow at record high interest rates, which has created a
cash flow crisis for my business. I have also had to pay our accountants almost double what we
budgeted for tax support, to navigate the ever-changing tax codes, revise estimates while updated
guidance is still pending, and regularly follow up with the IRS on our missing payments, since
my staff and I have spent countless hours trying to get through that would have been far better
spent focusing on our core competencies. I have estimated that between interest paid for capital
loans while the IRS withholds money we critically need now, and the additional tax preparation
and follow up fees we’ve incurred this year alone, we could have hired another full-time
engineer. On top of these direct costs, I have applied for an increased line of credit to provide the
necessary operating capital needed to hire and train new staff, for capital expense loans to
purchase new equipment needed to take on bigger projects, and we’re planning to apply for the
SBA 8(a) business development program as soon as possible, but all of these are contingent on
being able to provide our finalized 2022 taxes, which remain stalled. The indirect costs of these
delays are difficult to quantify, but they are significant.
        In all of these instances, it is clear to me that the IRS lacks adequate funding for taxpayer
services. Clear and timely refunds and guidance so that taxpayers can finalize our returns on time
and accurately budget for future tax payments is critical. This is especially true for small
businesses like mine that are investing in risky and expensive R&D, which the federal
government has otherwise dedicated so many resources to supporting, such as SBIR. I commend
our elected officials for reauthorizing the SBIR program, and I would love to be able to take
advantage of other existing programs to support small businesses, such as the 8(a) business
development program. I need the IRS to be a fully functional agency first, before that is a
possibility. I appreciate your attention to this urgent matter, before it is too late for my business
and so many others.

Thank you,




Alicia Chapman


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