House hearing (118th Congress), THE EMPLOYEE RETENTION TAX CREDIT EXPERIENCE: CONFUSION, DELAYS, AND FRAUD (PDF)

Summary

The printed record of a July 27, 2023 hearing of the Subcommittee on Oversight of the House Committee on Ways and Means, titled The Employee Retention Tax Credit Experience: Confusion, Delays, and Fraud. Opening statements come from Chairman David Schweikert of Arizona and Ranking Member Bill Pascrell of New Jersey. Witnesses are Larry Gray of AGC CPA, Roger Harris of Padgett Advisors, Pat Cleary of the National Association of Professional Employer Organizations and Linda M. Czipo of the New Jersey Center for Nonprofits. The volume closes with public submissions.

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HEARING ON THE EMPLOYEE RETENTION TAX
CREDIT EXPERIENCE: CONFUSION, DELAYS,
AND FRAUD

HEARING
BEFORE THE

SUBCOMMITTEE ON OVERSIGHT
OF THE

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION

JULY 27, 2023

Serial No. 118–0S02

Printed for the use of the Committee on Ways and Means

(
U.S. GOVERNMENT PUBLISHING OFFICE
54–354 WASHINGTON : 2024

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COMMITTEE ON WAYS AND MEANS

JASON SMITH, Missouri, Chairman
VERN BUCHANAN, Florida RICHARD E. NEAL, Massachusetts
ADRIAN SMITH, Nebraska LLOYD DOGGETT, Texas
MIKE KELLY, Pennsylvania MIKE THOMPSON, California
DAVID SCHWEIKERT, Arizona JOHN B. LARSON, Connecticut
DARIN LAHOOD, Illinois EARL BLUMENAUER, Oregon
BRAD WENSTRUP, Ohio BILL PASCRELL, JR., New Jersey
JODEY ARRINGTON, Texas DANNY DAVIS, Illinois
DREW FERGUSON, Georgia LINDA SÁNCHEZ, California
RON ESTES, Kansas BRIAN HIGGINS, New York
LLOYD SMUCKER, Pennsylvania TERRI SEWELL, Alabama
KEVIN HERN, Oklahoma SUZAN DELBENE, Washington
CAROL MILLER, West Virginia JUDY CHU, California
GREG MURPHY, North Carolina GWEN MOORE, Wisconsin
DAVID KUSTOFF, Tennessee DAN KILDEE, Michigan
BRIAN FITZPATRICK, Pennsylvania DON BEYER, Virginia
GREG STEUBE, Florida DWIGHT EVANS, Pennsylvania
CLAUDIA TENNEY, New York BRAD SCHNEIDER, Illinois
MICHELLE FISCHBACH, Minnesota JIMMY PANETTA, California
BLAKE MOORE, Utah
MICHELLE STEEL, California
BETH VAN DUYNE, Texas
RANDY FEENSTRA, Iowa
NICOLE MALLIOTAKIS, New York
MIKE CAREY, Ohio
MARK ROMAN, Staff Director
BRANDON CASEY, Minority Chief Counsel

SUBCOMMITTEE ON OVERSIGHT
DAVID SCHWEIKERT, Arizona, Chairman
BRIAN FITZPATRICK, Pennsylvania BILL PASCRELL, New Jersey
GREG STEUBE, Florida JUDY CHU, California
CLAUDIA TENNEY, New York BRAD SCHNEIDER, Illinois
MICHELLE FISCHBACH, Minnesota SUZAN DELBENE, Washington
BETH VAN DUYNE, Texas GWEN MOORE, Wisconsin
RANDY FEENSTRA, Iowa
NICOLE MALLIOTAKIS, New York

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C O N T E N T S

OPENING STATEMENTS
Page
Hon. David Schweikert, Arizona, Chairman ......................................................... 1
Hon. Bill Pascrell, New Jersey, Ranking Member ................................................ 2
Advisory of July 27, 2023, announcing the hearing .............................................. V

WITNESSES
Larry Gray, CPA, AGC CPA ................................................................................... 5
Roger Harris, President, Padgett Advisors ............................................................ 14
Pat Cleary, President and CEO, National Association of Professional Em-
ployer Organizations (NAPEO) ........................................................................... 22
Linda M. Czipo, President & CEO, New Jersey Center for Nonprofits .............. 31

PUBLIC SUBMISSIONS FOR THE RECORD
Public Submissions .................................................................................................. 65

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(V)

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THE EMPLOYEE RETENTION TAX CREDIT
EXPERIENCE: CONFUSION, DELAYS,
AND FRAUD

THURSDAY, JULY 27, 2023

U.S. HOUSE OF REPRESENTATIVES,
COMMITTEE ON WAYS AND MEANS,
Washington, DC.
The subcommittee met, pursuant to call, at 2:15 p.m., in Room
1100, Longworth House Office Building, Hon. David Schweikert
[chairman of the subcommittee] presiding.
Chairman SCHWEIKERT. The Ways and Means Oversight Com-
mittee is ready to begin.
All right. Good afternoon, and welcome to today’s Oversight Sub-
committee hearing.
This is a hearing to allow members of the committee to hear
from those directly impacted by the challenges associated with the
Employer Retention Tax Credit, ERTC.
The hearing will also allow us to hear from those who are help-
ing employers navigate the ERTC and the agencies that process
and administer the credit, the Internal Revenue Service, our be-
loved IRS.
The ERTC is a refundable tax credit originally enacted as part
of the Coronavirus Aid Relief and Economic Security Act, the
CARES Act.
In March 2020, for businesses and tax-exempt organizations, the
ERTC was designed to help businesses retain employees during the
COVID–19 pandemic.
The ERTC, however, can be complex credit to calculate correctly,
as there are many rules and regulations that make it difficult for
small businesses to figure it out on their own.
What is worse is we have already and repeatedly heard from
stakeholders about the hardship caused by—let me change the
page—processing backlogs, how the IRS has not issued significant
guidelines, and how the IRS does not provide updates to taxpayers
about the status of their ERTC claims. These challenges create a
lot of uncertainty for small businesses.
One of the challenges is the backlog of ERTC claims that the IRS
still needs to process. Form 941–X, the form by which employers
must file their ERTC claims is a paper form. The employers had
to file many ERTC claims retroactively as a result of processing
these claims by the IRS has been shown to create a massive back-

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log of unprocessed claims.
(1)

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Some employers have been waiting months, if not years, for their
credits, still have not actually been processed. This delay has cre-
ated immense hardship for employers, particularly small busi-
nesses who desperately need the help in retaining their employees
during the height of the COVID–19 pandemic.
To add to the frustration, employers are unable to check the sta-
tus of their ERTC claims. Not only have such delays—not only
have such delays—sorry, I didn’t like this line—not only have such
delays have the purpose of ERTC, but it has added prolonged and
confusing continued financial stresses to the employers who do not
know when their claims are going to be processed and when.
Moreover, insufficient guidelines from the IRS have left employ-
ers and taxpayers unsure how to do the right thing by correcting
ERTC claims that were unintentionally filed inaccurately, either
way with small simple mistakes or because they were misled as to
whether their businesses legitimately qualified for the credit.
Lastly, ERTC scams and fraud have been increasing so much so
that the IRS has been warning about these schemes since fall 2020,
encouraging businesses to be wary of aggressive ERTC marketing.
The IRS noted various warning signs for continued consulting
firms that may be bad actors: unsolicited ads; calls, emails, texts
from unknown persons; statements suggesting that the consultant
can determine ERTC eligibility and tax refund estimates within
minutes; larger upfront fees to assist in determining the filing of
the ERTC claims; and assistance provided under contingency fees
that provide the consultant with a percentage of any ERTC-related
tax refund.
In March 2023, the IRS added widely circulated promoter claims
involving ERTC to the newly entered annual dirty dozen tax scam
list. In addition, some are arguing for extensions for how long em-
ployers can claim the ERTC.
But there is a bottom line: Congress did not intend the ERTC to
be used by businesses as a line of capital for years. The COVID–
19 pandemic ended. The ERTC was meant to help businesses re-
tain employers or employees during COVID–19 pandemic, which is
now over.
The focus moving forward should be to eliminate confusion and
clear the backlog of legitimate claims for businesses just trying to
get their refunds they deserve. At the same time, we need to com-
bat the increasing amount of scams, frauds, and examine ways to
improve the process and to prevent similar challenges and hard-
ships in the future.
All of these make exploring the ERTC worthwhile. And I thank
the witnesses for being here today.
And with that, I would like to yield over to my friend, Mr. Pas-
crell.
Mr. PASCRELL. All right, Mr. Chairman, it is a good, beautiful
day here in Washington.
Chairman SCHWEIKERT. A little sticky.
Mr. PASCRELL. Just like yesterday. I thank you. And I would
like to first, Mr. Chairman, recognize and welcome Mrs. Linda
Czipo, president and CEO of the New Jersey Center for Nonprofits.

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We have worked very closely together over many years.
I appreciate your testimony. I appreciate you being here today.

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Employee Retention Tax Credit was vital to keeping America’s
small businesses and nonprofits afloat during the pandemic. This
relief was especially crucial in New Jersey, where the virus struck
early. Our state’s nonprofits worked tirelessly on the front lines of
pandemic response and recovery.
We all want to ensure the ERTC gets out the door to employers
who need it most. But we need to get to the heart of the issue, re-
sources. Decades of attempts to sabotage and destroy the IRS’ abil-
ity to serve taxpayers and enforce the law. That is what we got to
get to, and I am committed to get there.
You start funding enacted by Democrats has revitalized the IRS.
Get the picture that the other side has pictured giving us of the
IRS. We have guns at our doors. Give us your money while we are
reduced by 80,000 employees, and we were almost successful under
many more.
Americans are finally getting their calls answered by the IRS.
That is good news, right? Wrong? And their refund checks are on
time. That is either true or false.
I want to remind people, every Republican in Congress voted
against making tax time easier. Every one of them. We are good
friends on the other side, but they voted against us.
Why would you vote against that, making taxes easier to lawfully
bring into the Treasury? Like the old saying goes: You get what
you pay for.
Thanks to the Inflation Reduction Act, this filing season was one
of our most successful in years, believe it or not. Under fresh lead-
ership, the IRS has made enormous progress. Pull away times were
slashed to under 5 minutes. It may not seem very important in this
dreadful movements of life we have day to day. The backlog of re-
turns was finally cleared.
Now the IRS is using the same playbook to tackle ERTC claims.
In the past 2 months, we have seen nearly a half a million refunds
processed. That is pretty amazing when you have seen what the
IRS had to put up with 6 years prior, and what they were doing
with the least amount of resources they had per population. Nine-
ty-nine percent of claims are now less than 3 months old.
Most ERTC claims are filed on paper and processed by hand. So,
the IRS wisely directed IRA funding towards electronic filing and
automated processing. Bringing tax administration into the 21st
century means quicker refunds, fewer errors.
We know bad actors target the ERTC. We know that. We can’t
deny that. The record will show it. The IRS is already seeking
criminal charges and recovering billions in stolen money.
With the backlog cleared, the IRS is redoubling these efforts with
additional orders. Wealthy tax chiefs have operated with impunity
for years on the Democratic and Republican administrations. Look
at the numbers. How could you conclude anything else?
Thanks to the IRA, the IRS is finally able to pursue fair enforce-
ment by collecting what they owe—a fair tax system. You have
talked about it, Mr. Chairman. I talked myself to sleep about it
every day. If we don’t have fair tax collections, we do not have

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enough money in revenue, and then we got to talk about taxing
people for what they should not be taxed for.

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Now, that may be an oversimplification. Check the records.
Every dollar spent on enforcement pays for itself and then some.
There are some who continue to try and gut these efforts. They
will not be successful. Some of you on the other side of the aisle,
my good friends, even risk economic catastrophe to erase funds
through auditing wealthy tax sheets for Heaven’s sakes. It is a fact.
Why deny it? Why say that is not as important as—the sabotaged
risks are progress toward a functional tax system? It undermines
the very efforts we are discussing in administrating the ERTC.
Thank you, Mr. Chairman, and I yield back.
Chairman SCHWEIKERT. Thank you, Mr. Pascrell, and to the
overall committee chairman, Mr. Smith.
Chairman SMITH. Thank you, Chairman Schweikert and Rank-
ing Member Pascrell for holding this hearing on the Employer Re-
tention Tax Credit and challenges that businesses and tax pre-
parers have faced with this credit.
As the government forced businesses to lock down, Washington
temporarily helped businesses keep their employees on payroll.
That time has passed. Almost a year ago, President Biden went on
TV and told Americans that the pandemic is over.
Yesterday, IRS Commissioner Werfel said the agency has shifted
efforts after successfully clearing the backlog of valid claims. Yet,
according to the IRS’ website, as of July 19, the agency still has
almost a half a million forms left to process. This speaks both to
how the ERTC has become plagued by fraud, and how the IRS is
failing to process legitimate claims in a timely manner.
The problems at the IRS were present from the very beginning.
For starters, the IRS forced all businesses to apply on paper and
mail in the application. That has led to long delays. The IRS told
my staff in May that 20 percent of claims have sat unresolved for
more than 4 months. And we have heard from other businesses
who say they have been waiting years.
For small businesses who filed legitimate claims, this has become
a major source of frustration with the IRS. Businesses have found
the IRS guidance confusing, particularly the rules about whether
they are eligible or not. Some have raised concerns about how guid-
ance has been insufficient and changed, forcing small businesses to
spend more time with IRS rules that could be spent serving cus-
tomers.
Just this week, after the Ways and Means Committee announced
this hearing, the guidance changed again. The guidance changed
again this week.
I hope this rule will help clarify who was eligible for this credit,
but clear guidance should have been published a very long time
ago. The lack of clarity and speed from the IRS created an environ-
ment where dishonest, third-party companies took advantage of
businesses to either bend the rules or commit outright fraud.
The ERTC is on the IRS dirty dozen list of scams. Americans are
bombarded by scammers all day every day—texts, spam calls, mis-
leading mailers, emails. To be put on the list speaks to the severity
of this issue. We have a system where taxpayers get ripped off by

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scammers, while legitimate claims go unanswered because of a
backwards IRS system.

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We have someone to testify today who has lived this issue day
in and day out. Larry Gray is a fellow Missouri grad, a neighbor
from back home—I think your farm is across the road from me—
and he is a CPA who has spent decades helping families and small
businesses in south-central Missouri navigate the Tax Code. He
himself was the target of an ERTC scam, and he has lost clients
to competing accountants because he refused to prepare fraudulent
claims.
Thank you for coming to Washington to share your experience
with this program.
I want to thank all of our witnesses for sharing your ideas and
perspectives, to root out fraud, and ensure Washington is helping
those who serve it.
I yield back, Mr. Chairman.
Chairman SCHWEIKERT. Thank you, Mr. Chairman.
A quick introduction. We are going to do the short versions for
everyone.
Mr. Larry Gray is a partner at AGC, a CPA firm in Missouri and
has been a government liaison for the National Association of Tax
Professionals.
Mr. Roger Harris is the president of Padgett Associates—or Advi-
sors. Sorry about that.
Pat Cleary is the president and CEO of the National Association
of Professional Employer Organizations.
And Ms. Linda Czipo is the president and CEO of the New Jer-
sey Center for Nonprofits.
Thank you for joining us today. Your written statements will be-
come part of the record.
I am going to apologize to you now. As you know, today is a bit
of a chaotic day with multiple votes. So, we are going to go through
it. Somewhere during this, we are going to probably have a vote.
You may see some of us moving back and forth. It is the chaos of
the process.
Mr. Gray, please share with us your 5 minutes.

STATEMENT OF LARRY GRAY, CPA, PARTNER, AGC CPA
Mr. GRAY. That is first time I have talked and not heard. No,
again, thank you, Chair, Ranking Member, neighbor, and members
of the House Committee on Ways and Means Subcommittee on
Oversight. I appreciate this opportunity.
You have already done the introduction, but I think some notes
should be noted. For example, yesterday I spoke at the IRS tax
forms in Atlanta on tax law. I have been doing this now over 45
years. But during that time period, one of the things I think is im-
portant is that I had participated in the tax system.
Throughout the years, starting in the late eighties until last
year, I served on different volunteer advisory boards to the IRS. I
believe in the tax system. And I think what is so important here
today—and I have kind of got an introduction to the rest of the
panel—and I think the unusual thing, you might be surprised how
we are all on the same page. So, I am not going to read my testi-

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mony, but what I want to focus on is small business and small ac-
counting firms.

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With me teaching nationwide, when the pandemic happened, I
was like everybody else, I couldn’t go anywhere. So, I started doing
YouTube. I am old-fashioned, but I learned something different.
And the very first thing that I did three and a half years ago was
a form 7200. There was a way to get a credit for your employer as
an employer before you actually had to wait to do the quarterly re-
turn. That was a good idea. But what happened was when I had
got done, I literally said to the IRS, I can’t believe the fraud that
is going to happen. See, it has been known.
And so, then what happens is that whenever you have a $5,000
year credit, that is not going to make a big difference to the fraud.
But when that becomes $7,000—and then we got a lookback that
you can qualify for ERTC and PPP, the paycheck protection both,
as long as you don’t double-dip in wages, that is whenever it start-
ed.
So, I serve on the National Public Liaison Monthly Meeting to
the IRS. I have got a lot of good friends over there, and I will say
this: Three years ago, they were understaffed, and they were un-
derfunded. So, with that, what I look at is that I had no guidance.
I am with the IRS sign—there was no guidance when this all start-
ed. It takes some time to get through counsel and all of that.
So I go on the internet, and so I wanted to see what other people
were doing. So, all of a sudden Google doesn’t—I started realizing
these people aren’t explaining the law correctly. So, I took a couple
of my companies, small companies that I knew did not qualify, and
so I started shopping the ERTC mills. Because I am teaching
YouTube. I should understand the experience from the real world.
And so, with that, what would happen is that when I would look
at the advertising, your CPA, your EA, your tax person doesn’t
know what they are doing. But yet, when I look at some of the con-
tracts—here is one, Client acknowledges in a test that it is eligible.
Here is another one. The client acknowledges they are qualifying
business entity. It sounds to me like I am paying 15 to 30 percent
of that up to $26,000 for somebody to do clerical assistance. Be-
cause what happens in it, they also say in those agreements, they
don’t do audits. Then also say in those agreements, maybe they will
help you find somebody for the audit. I got a feeling they won’t be
here.
And here is what is sad. Anybody can put a number on a form
and see, you don’t have to put a reason why. There is two ways
to qualify. You have to do a reason why.
But in that, I want to hopefully see an aggressive, open Q&A
when we get to it.
But, in conclusion, going forward, we need to coordinate efforts
by starting at the top, appointing a chief counsel, permanent. That
has been vacant for, I understand, some years. Well, that is where
I as a practitioner and the community, the taxpayer, looks at for
guidance. We were getting no guidance. There should have been an
ERTC implementation team to coordinate from the top down. We
need education. We need guidance. The frequently asked questions
are out of date. They say they are historical.
So, my time is about up, and I hope in questions I get the normal

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what you are asked. Thank you.
[The statement of Mr. Gray follows:]

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Chairman SCHWEIKERT. Thank you, Mr. Gray.
Mr. Harris.

STATEMENT OF ROGER HARRIS, PRESIDENT, PADGETT
ADVISORS
Mr. HARRIS. Chairman Schweikert, Ranking Member Pascrell,
members of the Oversight Committee, thank you for having us here
today.
My name is Roger Harris of Padgett Business Services. We are
an accounting and tax firm that has been in business almost 60
years serving small businesses across the country. We currently
have a network of over 200—around 200 offices.
And this hearing couldn’t come at a better time, because the em-
ployee retention credit, while it was a great opportunity and a
much-needed lifeline to small businesses, it is fraught with fraud
as we sit here today. And it is putting a challenge on all of us in
the profession.
I think, however, we have to recognize that because of the pan-
demic, we did things quickly, and we did things maybe in a way
that we wouldn’t have done in normal times. And I hope that we
can learn from these experiences and not repeat these mistakes.
In my written testimony, there are some details, but I want to
talk about four main areas, and many of which have already been
mentioned.
The beginning and the first problem was how we submitted
claims to the IRS. There was no question that sending paper into
buildings with paper already there and employees not working in
them, that we were going to have a problem processing the claims,
which led to the second large problem that we face today, and it
is still ongoing, which is the delay in getting the money out to the
people who need it. Any time you send paper to the IRS, things are
going to take much longer.
We are in the beginning stages of a second problem that I think
has not gotten the attention it deserves yet, is the law is written
in such a way that it is going to require all of the businesses who
receive an employee retention credit to amend tax returns.
This could be tax returns from 2020, tax returns from 2021. And
if they are an S corporation or a partnership, it would also require
all of the partners and shareholders to also amend their returns.
So, there could be millions of returns coming in for which pen-
alties and interest will most likely be charged because it will be
producing additional tax.
So we are going to further stretch the IRS resources for the small
businesses to comply with their further obligation as the law re-
quires, and it is going to cost small business money that I think
we need to look—and we have talked about an alternate way to
solve that problem—but that is starting, and it is going to continue
get worse as time goes on and more people receive their funds.
The other thing that we are dealing with today, and you have
heard it talked about by every speaker up to now is the fraud that
is in the system. Any time this amount of money is being handed

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out through the tax system, the bad actors show up. And they have
shown up in large numbers, very sophisticated. I don’t think any

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of us can turn on a TV or a radio without hearing an ad from these
folks.
And it is stretching the relationship between their preparer and
the mills, as we call them, because, as Larry has mentioned, we
have had clients that we have dealt with for many years who have
trusted our advice. But all of a sudden, when someone is telling
them, your adviser doesn’t know what they are doing, and if you
will listen to me, I can give you a half million dollars.
It is very hard for us as the people who are working with these
small businesses to win that argument, in many instances, because
of the sheer amount of money that is being dangled in front of
them.
And as we have heard, the IRS has no choice but to begin en-
forcement actions to try to correct this. And one of the—Larry men-
tioned, and Larry and I go a long way back, so we are going to talk
a lot about the same things—is that we need help on how to deal
with these businesses that come to us who took this money and
weren’t entitled to it.
And we are asking the IRS for some help of a real-world solution
to give us the ability to try to bring these people back in compli-
ance. Because there is no way in the world we are going to audit
our way out of this problem. It is going to take a concerted effort
by our industry, the practitioner community, to help solve this
problem, because we are the people they are coming to today when
they get the money. And we actually can’t even amend the returns
unless we believe the claim is correct. So, our only alternative is
to say, well, we can make you give the money back.
But remember, they didn’t get all the money. They paid huge
fees. So, we need some real-world solutions to help our people do
what you want us to do, which is to bring the small businessowner
back into compliance because the IRS doesn’t have the capability
to do it.
In wrapping up, I do want to say one thing to credit the current
Commissioner. As Larry mentioned, he and I were both in Atlanta
at this IRS forum, and the Commissioner was scheduled to speak,
which he did. But, unannounced, he asked for a meeting with some
of the practitioners that were there that worked in the ERTC
world, and asked us, what did they need? What did he need to do
for us? What did we need from him? So at least the dialogue has
started, and let’s hope that it continues.
And I know my time is up, so I am going to refer you again for
details of my comments in the written testimony. Thank you for
having this hearing. Thank you for inviting us, and I look forward
to your questions.
[The statement of Mr. Harris follows:]

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Chairman SCHWEIKERT. Thank you, Mr. Harris.
STATEMENT OF PAT CLEARY, PRESIDENT AND CEO, NA-
TIONAL ASSOCIATION OF PROFESSIONAL EMPLOYER ORGA-
NIZATIONS (NAPEO)
Mr. CLEARY. Thank you, Chairman Schweikert, Ranking Mem-
ber Pascrell, members of the subcommittee.
Mr. Pascrell, I will begin with a personal observation. I began
this life at St. Joseph’s Hospital in Paterson, New Jersey. So, we
both found our way down here to Washington eventually.
Mr. PASCRELL. One T.
Mr. CLEARY. One T. That is exactly right. Exactly.
I am Pat Cleary. I am president and CEO of NAPEO, the Na-
tional Association of Professional Employer Organizations. We rep-
resent approximately 250 PEOs that provide payroll, benefits, risk
management, regulatory compliance assistance, and other HR serv-
ices to more than 173,000 small and midsized businesses employ-
ing more than 4 million people.
Our members account for more than 90 percent of the industry’s
$273 billion in revenue. Almost 15 percent of businesses with be-
tween 10 and 99 employees partner with a PEO.
I am glad to be here today representing small and midsized busi-
nesses or SMBs, as they are called, especially the hundreds of
thousands who are waiting for their ERTC funds.
PEOs are champions for their small business clients and their
employees by providing payroll benefits and HR services and as-
sisting with compliance issues under State and Federal law. PEOs
allow small businesses to improve productivity and profitability,
and to focus on their core mission and to grow.
Companies that use a PEO grow faster, have more engaged em-
ployees, have lower turnover, and twice the survival rate of compa-
nies that don’t. Among many services provided by a PEO is guiding
small businesses through the process of applying for the ERTC.
That is why we are here today.
Also, through a PEO, the employees of small business gain access
to Fortune 500 employee benefits such as healthcare, dental, vision
care, life insurance, retirement savings plans, job counseling, et
cetera, that they wouldn’t normally get as employees of a small
company.
Above all, though, I think what we are most proud of as an in-
dustry is in the dark days of the COVID pandemic, PEOs ensured
that their clients stayed afloat by securing PPP loans, and later,
loan forgiveness, managing employee leave, applying for available
tax credits, allowing the businesses to focus on managing—on re-
maining viable and staying alive.
In fact, businesses that use the PEO during the pandemic were
60 percent less likely to permanently close than those that did not
use a PEO during the pandemic. And they received PPP loans and
loan forgiveness at nearly twice the rate of businesses that didn’t
use a PEO. In short, PEOs helped tens of thousands of businesses
survive the pandemic. And, again, we are proud of that.
So, now we have got this new challenge. We have been sounding

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the alarm about this huge backlog of unprocessed ERTC claims for
more than a year. We engaged when the backlog was around

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200,000. We watched it grow to more than 1 million. It currently
stands at 488,000, having grown again in the past month. In short,
it is moving in the wrong direction. And don’t think of these as
mere numbers. These are businesses. These are people.
And the problem is much bigger than the numbers indicate. A lot
of claims are filed on an aggregate basis, like ours. So, it means
multiple small businesses claims are filed together on the same
form. The IRS counts these as one case when there could be hun-
dreds or thousands of businesses on that form, all stuck in the
backlog, and waiting for these critical funds. For example, a PEO
with 10,000 unprocessed claims is counted as one by the IRS.
A recent survey of only 43 of our 250-member PEOs revealed
that 18,000 small business clients are still waiting for the IRS to
approve almost $3 billion worth of claims for ERTC credits that
were filed before 2023. Almost 4,000 of these claims date back to
2020. It is completely unacceptable,
Yesterday, Mr. Smith referred to this, the IRS Commissioner
said the backlog had been eliminated, adding that 99 percent of re-
maining claims are 3 months old. It is simply not true. As of a
week ago, July 19, the IRS website said that the backlog was
488,000. You have got some context. Most, I was going to most,
many States don’t have 488,000 small businesses.
I know the big focus of today’s hearing is on fraud. I don’t know
how many allies the IRS has had in its fight against fraud, but I
can tell you that we have had a good relationship with the IRS, we
have stood shoulder to shoulder with them on this issue to prevent
fraud in this program, repeatedly warning our members, and giv-
ing them materials to help them warn their clients about so-called
ERTC mills, which proliferated as the processing delays that the
IRS continued, and the backlog grew.
But make no mistake, this backlog has been the single, biggest
business development engine for the fraudsters and the mills. Had
there not been a backlog, there would be no ERTC mills preying
on small business. And Chairman Smith noted that they have cre-
ated this environment for these mills to exist, and that is true.
These companies are desperate for money they are promised.
It is funny, just as we were preparing to come down here, I made
the mistake and pick up a call from a number you don’t recognize.
And it was some cheery person, Heather, calling to say, Hey, had
you gotten your ERTC money yet? And I said, no, it is funny you
should call. I am on my way to Capitol Hill to testify in a hearing
that is going to put you people out of business. That is the thing.
So, crickets. So, there was dead silence on the phone. So, I mean,
she didn’t know what to do.
Chairman SCHWEIKERT. And they are always named Heather.
Mr. CLEARY. Heather. Why is that? Another hearing on that I
think for this committee would be really important.
So, the IRS were trying to triage this problem. I would tackle the
PEO claims first. PEOs should inspire a higher degree of trust and
confidence. Because we have got ongoing relationships with estab-
lished businesses that we work with, and they specialize in compli-
ance—we specialize in compliance assistance. Compliance is what

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PEOs do. The IRS could pull out those claims today and process
them with a high degree of certainty about their validity.

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In fact, the Commissioner’s lengthy statement and his lengthy
statement yesterday, he identified the key indicators of fraud, like
what to look out for. None of them——
Chairman SCHWEIKERT. And may have to come back to those.
Mr. CLEARY [continuing]. And none of them applies as it turns
out. So, we know firsthand the hardship that the ERTC backlog is
causing for small businesses across the country because we hear
from them every day, every day. PEOs have longstanding relation-
ships with many of their clients and have become invested in their
success. Catalogs, most of these stories on ERTC delays hurts
small business.
Chairman SCHWEIKERT. And with that, we are going to have
to go way over time. Ms. Czipo.
Mr. CLEARY. I will stop and take questions later. Thank you.
[The statement of Mr. Cleary follows:]

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31
STATEMENT OF LINDA M. CZIPO, PRESIDENT & CEO, NEW
JERSEY CENTER FOR NONPROFITS
Ms. CZIPO. Good afternoon, Mr. Chairman, Ranking Member
Pascrell, members of the committee, thank you for the opportunity
to be here today.
Again, my name is Linda Czipo. I am president and CEO of the
New Jersey Center for Nonprofits. We are a statewide network
champion and service organization for the charitable nonprofit com-
munity in New Jersey. We are ourselves a 501(c)(3) public charity,
and we are part of the National Council of Nonprofits Network.
Our message is essentially the same as what you have heard. We
are all here for the same reasons. We want to reduce confusion. We
want to combat fraud. We want to eliminate the backlog.
I do want to underscore some points when pertaining specifically
to the charitable community, because it is hard to—you can’t over-
state the essential role that charitable nonprofits have played in
COVID–19 pandemic response and recovery. But it is also hard to
overstate how important the ERTC has been for the ability of non-
profits to continue serving our communities.
Even before the pandemic, nonprofits were challenged by steadily
rising demand with resources that were not keeping pace. And the
prolonged health and economic crises spurred by the pandemic ex-
acerbated this to an unthinkable degree, stretching organizations
to the breaking point when your constituents were turning to them
in record numbers.
We know that in this context programs like the PPP, like the
ERTC have been absolutely critical for nonprofits to continue to
serve people and communities that need them.
We know that participation in the ERTC is very high. We actu-
ally, our organization ourselves received an ERTC credit.
Our process was comparatively smooth. We filed electronically
with the help of our accounting firm and payroll company. But we
know that that is not the experience that every nonprofit had. One
of the issues is of course complexity.
First, I want to thank Congress for structuring the ERTC as a
payroll tax credit to allow nonprofits the opportunity to participate.
But the sheer complexity, repeated changes to guidance, and in
some cases guidance that didn’t necessarily apply readily to non-
profits, created or exacerbated the confusion.
During 2020 and 2021, the criteria or guidance changed no fewer
than four times. And think about this. It says in a climate where
nonprofits are trying to work to save lives in the community. They
are trying to grapple with frontline people, unprecedented demand
for their services.
And in this kind of climate, trying to juggle meeting demand and
trying to navigate these requirements was extremely difficult. They
didn’t have the human capacity or resources to be able to try to fig-
ure this out at the same time. So, what this meant was, of course,
widespread confusion and, in some cases, missed opportunity for
relief.
For every organization like ours that received ERTC, there are
hundreds or perhaps thousands of others that were not aware of

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what the requirements were, or unable to take advantage of them
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We, too, like everybody at the table, along with our network and
counterpart association have tried to work to educate the commu-
nity about the program, encourage eligible organizations to look
into it, but also to be wary of fraud. We, ourselves, had the experi-
ence of an unscrupulous provider contacting our members, saying
they were working with us when it just wasn’t true.
So, we understand firsthand. And what this underscores is the
need for ongoing communications, education from trusted resources
in and outside of the government to ensure the program reaches
employers as Congress intended.
So just a few recommendations on—again, we have a more de-
tailed statement. I am happy to entertain questions.
Ensure that from the outset, relief programs are structured to
ensure equitable access for charitable nonprofits—that means pay-
roll tax credits—that structure was critically important, but also
making sure that rural grassroots and organizations that address
historically marginalized communities can participate. Simplify the
eligibility process and application process at the outset so that
smaller entities can participate. Provide ample opportunity and re-
sources for education resources, training, and application assist-
ance.
Because, again, in the charitable nonprofit community, organiza-
tions are immersed in service delivery and dealing with the crisis
at hand, which doesn’t leave a lot of time to analyze and navigate
complicated systems.
And, of course, to the greatest extent possible, put safeguards in
place to protect against predators and scam artists.
So, again, we thank the committee for the chance to be heard
today. We stand ready to work with you on this important issue.
Thank you very much.
[The statement of Ms. Czipo follows:]

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Chairman SCHWEIKERT. Thank you, Ms. Czipo.
As you are going to see, we are going to do some juggling because
we are also going to have a vote series. Always remember you are
on lots of televisions all over the campus. It is just the nature, so—
and I was going to have Mr. Steube go first.
Mr. STEUBE. Thank you, Mr. Chairman.
My questions are for Mr. Harris.
Numerous employers have come forward with their stories about
months, and even year-long delays, in processing their Employee
Retention Tax Credits. In some cases, it is millions of dollars of
these credits claimed by employers. How has the complexity of
ERTC returns contributed to the backlog that employers are expe-
riencing today?
Mr. HARRIS. Well, I think there has been a lot of factors that
have contributed to it. I think we start with the way that we ini-
tially ask for the credit, which was just the filing and the paper.
I think that is the biggest contributor.
Complexity has been a problem in many instances, particularly,
with the retroactive and coordination with PPP loans. So those of
us that have tried to do things correctly, it was a complex calcula-
tion, and it took some time. I can’t speak to how some of the mills
dealt with this, because I think they sometimes found shortcuts
that we couldn’t find.
But I think the real issue started with the fact that we knew—
a lot of the problems in this program were predictable. They were
things that we could see coming. Any time you ask paper to be
sent—and as I said in my opening statement—into a building with
nobody working and already paper backed up, delays shouldn’t
have been a surprise. But complexity is a problem in all of the Tax
Codes, not just this.
Mr. STEUBE. And in your testimony notes, there were sugges-
tions were given to the IRS to improve the ERTC processing. Can
you elaborate on what those suggestions were and whether the IRS
was implementing those suggestions?
Mr. HARRIS. We made a couple of suggestions, and others did,
that, number one, recognizing the fact that these were going to be
sent into bills, that we had to do paper. That there should be dedi-
cated post office boxes, identifications. Some way of prioritizing
these claims above the normal workload. Because, again, we were
in the middle of a pandemic. These were funds to provide lifelines
to small businesses, and yet they just fell in.
So, we did not see any of the suggestions that we may have
taken. I know others had different things allowing them to be
claimed on a current-year process return that could be filed elec-
tronically. So, I think we just fell back into the way it was always
done, and in that case, we had great delays.
Mr. STEUBE. Do you have any other suggestions that would
avoid some of the backlogs that we have seen in the future?
Mr. HARRIS. Well, I think, generally speaking, and again, if we
have the time and we are not in a pandemic, we should always look
for ways not to—today, what we are doing is solving a problem. I

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would like to find ways with the IRS to prevent the problem.
Mr. STEUBE. Right.

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Mr. HARRIS. And I think one of the ways to do that is look for
alternate ways; take advantage of electronic filing; take advantage
of things that are currently being done; and be creative in terms
of just being this is the way we always did it.
Mr. GRAY. If I may say something to add to that? I mentioned
the 7,200, and it came out, and saw it was very fraudulent. It was
a fax number end. In that case, the IRS did step up to the plate
on it.
But I think the other thing, the form being filed with just a num-
ber on it. See, there are two—there is a startup business—but the
main way to do this—there are two ways to do it. If they would
have at least put a code on there and said one is based on gross
receipts, they already have that information on the income tax re-
turns.
Where all the fraudsters have come from is not from the gross
receipts tests and deficiency, which was the company hurting most,
if they would have had to two pipelines just that in and of itself
would have moved the companies with the biggest losses, because
there was no decision on that other than a calculation. And the
auto part was just to verify with income tax credit. So, all that got
thrown in with the other.
And then, when the offer mills come along—but the most impor-
tant thing if they this—put toward at least two codes, again, the
company losing the most money would have been the first taken
care of, which, to me, was very important.
Mr. STEUBE. Well, that kind of leads me to my next question.
How has the fraud and the scams impacted the backlog that em-
ployers are facing today?
Mr. GRAY. I guess that was directed toward me. I think the big
issue is the fact that you are getting all of these quarters with a
number changed and no reason why. So how do you audit some-
thing?
And so, what happens, you know, the demand. And as I said in
my printed statement, the reason why we are all here today is to
get the right money to the right qualified employer. And we all
want it to run faster.
So, I think the other thing would be is that Budge and I attend
monthly meetings here in D.C. Three years ago, I seen the problem
coming. But I think what happened was is when you are pulling
off thousands of people in compliance over to take care of the EIP
and the 1040 rebates and credits, then you have got a shortage of
staff, and these papers are piling up.
It is amazing, for example, a 1040-X, and I believe 941-X also,
even if you do that electronically—no it is a 940-X, you do an
amended return, and you think you are e-filing it, they actually
print it out and scan it in.
Chairman SCHWEIKERT. No.
Mr. GRAY. Okay. I do want to say, in my comments, I was—we
do have a new Commissioner, and I think over the last few weeks,
they are starting to listen.
Mr. STEUBE. My time has expired. Thank you, guys, for being
here today. I appreciate it.

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Chairman SCHWEIKERT. Thank you, Mr. Steube. Ranking
Member Pascrell.

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Mr. PASCRELL. Yes, I very much read the report that came out
yesterday from the IRS, updated all the numbers that we have
heard turn around here today. There is a summary for that report
as well. It is a four-pager. In that summary, and in the report
itself, the IRS is telling us that this problem started in 2019, and
was seen throughout 2020. And they realized they had to do it. I
would agree with Mr. Gray that Mr. Werfel is the guy right now.
I think he knows what he is doing. He will not jump just to make
us happy that things are happening. Because we want it not only
to be a solution—one of you said this—we want it to sustain itself
and try to reduce the amount of hesitancy that exists right now so
people, the consumer doesn’t have to wait so long.
Ms. Czipo, you stated that two-thirds of the respondents to a sur-
vey reported receiving COVID relief from the government. That is
a lot of people. What type of education and outreach services did
your organization conduct to make nonprofits aware of the ERTC?
Be as brief as possible. I have got a number of questions.
Ms. CZIPO. Yeah, we did, along with our counterpart associa-
tions, workshops, webinars, recorded videos, emails, social media to
try to reach our members, our network in New Jersey of 5,000-
plus. And, of course, the reach of our counterparts across the coun-
try is very broad.
We wanted to make sure that organizations were aware of the
programs, the changing requirements; also, quite frankly, the
warnings against not falling for the scams. But we wanted to make
sure of it—and we still do this to this day—we still hear from
members that don’t know that nonprofits are eligible for this pro-
gram.
So that education is ongoing. And we know that we have reached
a lot of organizations that might not have otherwise known about
this.
Mr. PASCRELL. I agree with that. You discussed the need for
more education and clearer processes to help nonprofits navigate
the ERTC. How can education and streamlining the application,
critical to what we are talking about here, help cut down on the
scams targeting vulnerable organizations?
Ms. CZIPO. Well, that is really a key, key point because I think
one of the biggest roots of the proliferation of the scam artist was
the complexity of the program. You have got organizations, as we
talked about, on the front lines trying to meet unprecedented de-
mand for their services, but they also are dealing with lost rev-
enue, canceled programs, and the like.
And so, you get somebody coming into your door, you are going
to try to listen to them. Because this is not what you are special-
izing in. The simpler we can make this, the easier it is for organi-
zations to deal with.
That is part of the reason why time, extra time to apply also
matters. Because organizations have to analyze their systems and
whatnot. And making that choice between am I going to serve the
person who is at my door today, or am I going to be to stop and
look at this morass of guidelines that may change next week is a
really, really hard choice to put on a nonprofit.

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Mr. PASCRELL. What did your organization experience when
claiming and receiving the ERTC? And what type of information

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did your organization need to gather and provide to your account-
ant? That is a tricky thing here we are talking about.
Ms. CZIPO. It is. And there is a reason we didn’t apply right
away either because we also—we are a small office.
Mr. PASCRELL. Right.
Ms. CZIPO. And we had to figure out if we might be eligible. And
we had to work with our accountant and provide payroll records
and provide our financial records so they could help us analyze
whether our gross receipts had gone down enough.
And, of course, the moving target of the definition of gross re-
ceipts also was a problem for the charitable community. And then
look at our payroll records. So, it is a multi-step process.
And that is part of the reason that we were also trying—we were
in an emergency mode as well. And so, trying to navigate that was
a lot bit challenging. And our process was a little smoother than
some, but it definitely took some time. And there were a lot of
steps.
Mr. PASCRELL. My final question, quickly, what lessons should
Congress take away from the ERTC implementation that can guide
the design of future tax relief programs for nonprofits?
Ms. CZIPO. The biggest message is the fact that this was struc-
tured as a payroll tax credit, which allowed nonprofits to partici-
pate. That was the huge, huge win for nonprofits. It really was a
lifeline. Any further future programs, if they can be structured that
way, that will make a huge difference for the community.
Mr. PASCRELL. Another question will lead you to about a two-
hour answer, but it is a complicated process. But thank you for
your testimony. Thank you for all your testimony. You have helped
beyond what you even think.
Chairman SCHWEIKERT. Thank you, Mr. Pascrell. And if you
are going to go vote, we will say nice things about you when you
are gone.
Ms. TENNEY. Thank you, Mr. Chairman. Just thank you for
holding this hearing. Thank you to the witnesses. We appreciate
your testimony today. And I thought maybe I could follow up on
Mr. Pascrell’s question, maybe with Mr. Cleary.
What do you believe—we were just talking about how we would
have made this program better. Do you believe that the way that
the IRS calculated this program as a payroll tax credit? Is that
something that you thought was in error, resource, or it could have
been fixed? Just quickly because I am just curious about your re-
sponse to that.
Mr. CLEARY. Yeah, I don’t know. And the tax experts here
would be in a better position to answer. But what I do know is
when they did a surge and put a bunch of people on the case, the
backlog came down. That is easy.
So whatever else was happening inside of the bubble, for us, it
was just a matter of applying resources to the problem and trying
to drive the backlog down. Because that is really our big problem.
Many times, you have got 500,000 cases. We have got thousands
and thousands and thousands of cases in that subset that are held
up.

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Ms. TENNEY. Well, let me ask you, while we are on the backlog,
do you think that the way the IRS calculates the number of un-

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processed Employee Retention Tax Credit claims is accurate—is it
accurate the way they are processing it, in your opinion.
Mr. CLEARY. Well, no, because as I mentioned in my statement,
for PEOs that—it could have a very small PEO may have 100
claims with the IRS. Large PEOs may have tens of thousands of
claims. Each PEO is counted as one. So, if we get 250 members,
that is 250 claims that the IRS counts when I have——
Ms. TENNEY. As one.
Mr. CLEARY. Yeah. It could be tens or hundreds or thousands
of cases.
Ms. TENNEY. So, Mr. Cleary, I will stick with you for a minute.
The IRS claims to have doubled the amount of Employer Retention
Tax Credit claims that they process every week from processing
20,000 claims per week during the filing season down to 40,000
claims per week.
So just yesterday, the IRS issued a press release where Commis-
sioner Werfel stated that the IRS had successfully cleared the
backlog of valid ERTC claims. They even said it was 99 percent
done. So, from your experience, and you just indicated this, does it
seem like the ERTC backlog has been cleared?
Mr. CLEARY. No. And, in fact, their own website a week ago
said that it was almost 500,000 in the backlog. So, they didn’t clear
that out in a week.
So that is the first problem that we are seeing occur with this.
And you see again in the last week that it ticked back up by an-
other few hundred thousand. So, it is almost at half a million. So,
whatever the problem is, there is something out of whack with the
count.
And I agree, we wish the Commissioner well. As I said, we have
had a really good relationship with the IRS. But for his credibility,
I think first shot out of the box he needs to be credible and truthful
in terms of describing what the backlog is.
Ms. TENNEY. Well, we thank you for that, but the exact number
is actually 488,000 right here. So, we know that there is a huge
backlog. So, to claim that somehow these are done—and we appre-
ciate what you do as PEOs as a small business owner.
Mr. CLEARY. Thank you.
Ms. TENNEY. We are dependent on PEOs and the great services
they provide in helping us get through some of the confusion and
difficulty in dealing with the IRS. And we understand the bureauc-
racy. We know it is difficult.
But this is real money. And we have low margins in small busi-
nesses. And we appreciate that what you do—and we appreciate
that you on top of this. And when I have met with so many small
businessowners, the first thing that everyone says is the 941-X
form. Oh, you know, I just hear it, and it is problem, and the IRS
needs to solve it.
And we appreciate the work you do to advocate for people who
are in this position, especially the small businessowners that don’t
have the resources and the compliance teams and the lawyers and
accountants to really make it happen.
So, we have work to do, and the IRS needs to clarify this. And

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it would be nice if the Commissioner would come out and admit
that we have almost a half a million claims that are still out there

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with businesses struggling to get this right and struggling to com-
ply with the law.
Mr. CLEARY. That is right.
Ms. TENNEY. So, we appreciate all the witnesses. I think we
have got to run to go votes. But thanks so much. And thank you
to all of you again for your expertise and also for being willing to
come here, as Mr. Schweikert said to be on national TV and have
everybody on the Hill watching you guys.
Mr. CLEARY. Thank you.
Ms. TENNEY. Thanks so much.
Ms. VAN DUYNE [presiding]. The chair now recognizes the
gentlelady from California, Ms. Chu, for 5 minutes.
Ms. CHU. Ms. Czipo, I want to thank you for your testimony,
and I appreciate that you recognize that this credit was absolutely
vital for many of the nonprofits and businesses who claimed it.
Congress created the ERTC on a bipartisan basis in the CARES
Act. We asked the IRS to set up a new refundable credit at the
same time that the agency was working remotely because of the
pandemic and sending economic impact payments to every tax-
payer.
The credit nevertheless provided absolutely critical support for
establishments that were closed down or restricted by government
orders to protect public health.
And because of that, and the other pandemic aid programs, like
the Paycheck Protection Program, our economy bounced back faster
and stronger than any of our peers.
But I recognize that the ERTC has faced immense challenges
and has been a burden so far to too many entities instead of help-
ing them.
And one of the lessons is that the IRS simply did not have the
resources to properly administer this credit. They could not accept
electronic forms. They did not have enough employees. Their sys-
tems were outdated and overburdened.
That is exactly why Democrats passed the Inflation Reduction
Act and reversed over a decade of Republican cuts to the agency.
And the results are clear: The IRS just yesterday reported that
they were able to add new staff to address the surge of filings and
clear the backlog of old claims, giving them the ability to focus on
new claims and fraud mitigation.
So, Ms. Czipo, can you talk about whether the increased re-
sources for the IRS provided by the Inflation Reduction Act are
helping nonprofits and businesses to get the help they need from
the agency and whether you believe that cutting these funds for
the agency would hurt taxpayers and hinder their ability to
smoothly claim ERTC and other credits?
Ms. CZIPO. What I would say is yes. Certainly, the backlog—we
were dealing with unprecedented crises certainly with the pan-
demic. That is the understatement. And more IRS resources means
more ability to process applications, to provide guidance, to answer
questions.
We certainly recognize that the changes in the guidance were the

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result of efforts to try to swiftly address an unprecedented crisis.
So having more hands on deck, if you will, certainly makes the

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odds of that process going more smoothly, it certainly increases
that quite a bit.
So extra resources at the IRS, we think, is certainly a very
strong and important aspect of making the program run smoothly
now and in the future.
Ms. CHU. And let me address a specific issue, which is that busi-
nesses are required to file a 941–X form with the IRS on paper
rather than electronically.
Fortunately, the IRS has said that they expect Form 941–X to be
eligible for electronic filing starting next year. It is a commonsense
improvement made possible by the resources that Democrats pro-
vided to the IRS under the Inflation Reduction Act.
So could you talk about how electronic filing will help nonprofits
and businesses claim the ERTC and make other amendments to
their quarterly taxes moving forward?
Ms. CZIPO. Certainly. Electronic filing speeds up the process ex-
ponentially.
And we were actually able to file electronically. I was not aware
of the point made that the IRS prints out the forms. But we filed
our form electronically. Our process went smoothly. We had our
credit back within 8 weeks.
So, we have seen firsthand that it can work very well. And I
think the more the process can be streamlined and remedies, like
electronic filing, clearer guidelines, more consistent guidelines from
the outset, making sure that things are simple so that as many or-
ganizations, eligible organizations, can take advantage of this as
possible, that is all really, really important.
Ms. CHU. And I heard from all of you about the unscrupulous
vendors who targeted the small businesses, you also eloquently
talked about that, and it pressured them to apply for tax credits
that they may not qualify for just so that they could collect this
commission.
I heard from CPAs that this problem is pervasive, and unlike the
types of fraud we saw with other pandemic programs, oftentimes
the applicants making the improper requests for aid are doing so
with no ill intent, but simply because they were misled.
And I heard that the IRS is distributing information to make
sure that we do not have these fraudulent claims and that we can
identify them earlier. And I certainly hope that that can help in
this process.
And I yield back.
Ms. VAN DUYNE. And the chair recognizes herself.
We have many roles here in Congress, and one that stands out
the most important is providing constituent services and helping
them weed through the never-ending bureaucratic tape.
But at the top of that list is the IRS. Nobody likes paying taxes,
which is really made more painful when the IRS does not do its
job. And that is what we are here looking at today.
Congress enacted the ERTC at the beginning of the pandemic to
provide rapid tax relief to eligible employers who kept employees
on the payroll despite being harmed by the pandemic.
The outdated IRS process that employers must use to claim the

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ERTC has not worked well, and it has contributed to the backlog
of unprecedented unprocessed returns that resulted in many em-

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ployers waiting 2 or more years, as we have heard today, for their
claims to be processed.
And despite the fact that the IRS is making it difficult for legiti-
mate claimants to receive their tax funds and tax returns, the IRS
is doing a very poor job of preventing fraud. And, as of April 20,
IRS Criminal Investigations initiated 122 investigations involving
over $1.2 billion of potentially fraudulent ERTC claims for tax
years 2020 to 2022.
Mr. Cleary, you have got your Heather. I have got my Deb.
Oh, is she going to play? Oh, come on.
[Voicemail message played.]
Ms. VAN DUYNE. Who wouldn’t call back on this?
Chairman SCHWEIKERT. Is her name Heather?
Ms. VAN DUYNE. Her name is Deb. I didn’t have a Heather. I
have a Deb.
But it is amazing to me how many of these calls I have gotten.
And, by the way, I called back. You answered the phone. I called
back today—or I called back, and they still keep me on the list.
And I tell them who I am. And, yes, while I may have employees,
I guarantee you I am not eligible. And they still keep me on that
list.
So, we have learned that these ERTC mills have been approach-
ing businesses and telling them that they qualify for the ERTC,
even though some of these businesses were already told by their
tax preparers that they don’t qualify for the credit.
So how prevalent do you find this issue if I am getting calls and
you are getting calls just this morning? And do you think it has
led to an increase in improper ERTC claims?
Mr. CLEARY. A hundred percent. And to your question, like,
who on Earth would call these people back? The answer is simple:
desperate businesses.
Ms. VAN DUYNE. Yeah.
Mr. CLEARY. So, on our website, ‘‘ERTC delays hurt small biz,’’
there are just scores and scores and scores of first-person accounts
of people who closed their business, moved their manufacturing op-
eration, shut it down, refinanced their homes, gave up their pen-
sions, everything for this. They are desperate.
And that is why I said the easiest way to clear the—or get rid
of the mills is clear out the backlog. People are desperate for the
money. They need it to stay alive. And so, if I am going to wait
and I don’t know how long, because there is no way to find out
where my claim is, then I am going to call Heather back and say,
‘‘What can you get me?’’
Ms. VAN DUYNE. Yeah.
Mr. CLEARY. And that is real. That is what is happening out
here.
Ms. VAN DUYNE. So, some of these ERTC mills offer refund an-
ticipation loans, in which they loan employers a certain percentage
of their expected ERTC refund and, in the meantime, charge them
interest-only payments.
Would such a refund anticipation loan from an ERTC mill in-

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crease the level of risk that an employer is exposed to?
Mr. CLEARY. Well, sure, there is that.

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And then the other problem we keep saying—and, again, we
have been shoulder to shoulder with the IRS in warning our mem-
bers and make sure they warn their clients, like, don’t get in bed
with these people.
Because the other issue—I think Roger alluded to it—is, where
are these folks going to be in a year? So, when you get audited,
where are they going to be? Gone.
Ms. VAN DUYNE. Gone. They got their money and now they are
gone.
Mr. CLEARY. Absolutely. Cardboard stand in the airport, they
folded the tent, and they went——
Ms. VAN DUYNE. I have a quick question. You had answered
Ms. Tenney’s questions a little bit about some of the struggles that
they are going through to file their taxes. But just as a follow-up,
when Commissioner Werfel was here before this committee, he
claimed that the IRS would process oldest claims first.
Mr. CLEARY. Yeah.
Ms. VAN DUYNE. Have the PEO industry and their clients seen
the oldest claims processed first?
Mr. CLEARY. No. We have 4,000 claims from 2020 that we know
about and probably more than that. That is just a sampling of our
members, less than half of our members that had 4,000 claims
from 2020. So, no.
Ms. VAN DUYNE. What are they telling you? What does the IRS
tell you when you call?
Mr. CLEARY. Not a lot.
Ms. VAN DUYNE. All right. Well, thank you very much.
Mr. CLEARY. Thank you.
Ms. VAN DUYNE. My time has expired.
Who am I recognizing next?
Oh, Mr. Schneider is recognized for 5 minutes.
Mr. SCHNEIDER. Thank you so much.
And thanks to the witnesses for sharing your stories. Obviously
a lot here, and I appreciate you bringing your expertise to us.
I appreciate the work you do. I am the son of a CPA. I worked
for him summers. I started my career at Pricewaterhouse on the
consulting side, not the accounting or tax side.
Mr. GRAY. Smart move.
Mr. SCHNEIDER. But I know what it was like. I worked for a
local firm in Chicago. It was then Blackman Kallick. So I appre-
ciate this.
Mr. Gray, you put something in your written testimony that
struck me, struck me to the core, because you are saying you are
hearing practitioners—and my dad was a—he worked with a firm,
started out of college, became a partner. They sold that firm to a
bigger firm, but then he left and started his own firm again. So I
know what your firm is like, and I know what your clients are like.
You said there are practitioners giving up, saying they are done,
that they are going to lose to these corrupt mills, why not join
them. And I know there are bad actors in every industry, but every

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accountant I worked with, know, I was pretty confident that they
were straight shooters.

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My dad raised me—I mean, if they overcharged me a penny on
a check, I am going to make sure that they knew it. But if they
undercharged me a penny, I was going to make sure I paid it.
Mr. GRAY. Yes.
Mr. SCHNEIDER. That is the accountant mindset.
Mr. GRAY. Yeah.
Mr. SCHNEIDER. Could you go a little bit more about these peo-
ple who are joining rather than fighting the mills?
Mr. GRAY. I would say that, if we go back 3, 4 months, I would
have never thought you would hear that.
But I think also part of the deal is by—I think part of it is the
complexity of the law. And so what happens is, when you are try-
ing to explain it to people, this party is not charging all of these
great fees, but the thing about it, it has changed the definition of
qualifying. And so partly the law itself is complex.
And, secondly, there is no guidance. When you think about it,
you go to IRS.gov, and it will lead you to frequently asked ques-
tions. And when you pop it up, it says these are historical. Where
do I go for guidance?
Mr. SCHNEIDER. Right.
Mr. GRAY. That is small business.
Well, now what happens is I had a friend in Illinois that she just
lost her largest client. And the problem is that—here is a great big
one I see a lot of pushback on.
If I as a CPA and you come to me and I have told you that you
don’t qualify and you go to the mill and get the money, then I
can’t—and it just got issued in March by OPR——
Mr. SCHNEIDER. Yeah, and I am sorry. I am going to have to
reclaim just because of time, but I think that is a key point.
And, Mr. Harris, you kind of touched on this about how—and I
am going to put it back to us on this committee—how can we find
a way to help you and your franchisees in this case bring people
back into compliance?
Mr. HARRIS. Well, we need real world solutions. We have people
who—to Larry’s point—they listen to us in the beginning until
some very slick ad, like we have seen here, gets them on the phone,
and all of a sudden, they have a half-million-dollar refund that
they are due, of which they only get $400,000 at least; $100,000
goes to the person that did it.
So, they come to us, and we can’t amend the returns because we
have been told we are not allowed to. And yet you want us to pay
back $500,000 when we have only got $400,000.
Mr. SCHNEIDER. Yeah.
Mr. HARRIS. We need to work together, our community with the
IRS, and Congress, when necessary, to recognize that some small
businesses have been trapped in a situation that all of us would
have been tempted to be trapped in.
Mr. SCHNEIDER. I hear you, and I appreciate that.
And maybe I will turn to Mr. Cleary. Two questions.
The first one is, are your clients, because you are representing
thousands of—your members represent thousands, tens of thou-

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sands of companies, are they applying multiple times for the
ERTC? Are they applying and waiting and then going to these

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mills? That is kind of the impression I have from what you are say-
ing.
Mr. CLEARY. Oh, that is a great question.
No. I mean, it is either—you choose your lane. So, I mean, they
throw in with their PEO, which they typically do, and say, ‘‘Hey,
can you help me get this?’’
Mr. SCHNEIDER. And then, because it is taking so long, they
are not picking up the phone and talking to Heather or Deb and
saying, ‘‘I want to do it again.’’ That is not what you are saying.
Mr. CLEARY. I hope not. I think—I am looking at these guys—
that would be really dangerous if you had both of them going at
once because then you are going to end up in——
Mr. SCHNEIDER. And I am short on time, so I will just wrap
up.
The ERTC, as you guys have all noted, we were dealing with a
wildfire, my analogy. We were throwing blankets on that fire. We
knew there were holes in them. But the ERTC saved more than a
million—1.3 million jobs—and we have grown the U.S. GDP by
$135 billion, we have seen over the last months. It slowed and then
helped to staunch that fire. So I think it was critical.
Do we learn from it? Yes. Do we cut the backlog? Yes.
Mr. Cleary, you mentioned that the backlog is growing again. It
is because people are applying again. And 500,000 is a big number.
Mr. CLEARY. Yeah.
Mr. SCHNEIDER. How many small businesses are in the United
States?
Mr. CLEARY. Well, more than that. But remember, the 500,000
includes hundreds of thousands that are counted as one.
Mr. SCHNEIDER. It is almost 32 million.
Mr. CLEARY. But if you are one of those businesses, it is all the
marbles.
Mr. SCHNEIDER. I get it. Every one——
Mr. CLEARY. It is all the marbles. That’s starfish.
Mr. SCHNEIDER. One, we need to cut it out and get it to zero,
and that is the goal. But I don’t want to overstate the numbers.
It is a significant number, but it is not the majority of businesses,
as might have been implied.
I yield back.
Chairman SCHWEIKERT [presiding]. Mr. Feenstra.
Mr. FEENSTRA. Thank you, Mr. Chairman.
I just want to probably take a little different vein and a different
approach. I am here to try to figure out solutions, what we can do.
I have 39 counties that I represent in Iowa, and they all are
rural. They are all small Main Street businesses.
And this was a great thing, the Employee Retention Tax Credit.
It did exactly what it did, it sounded like. It created payroll at a
time when the government was requiring businesses to shut down.
So, it was very critical.
And I get it. I mean, when you roll something out so fast, you
are trying to resolve something, you are going to have a lack of
clarity, you are going to have a struggle with eligibility, and stuff
like that.

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But think of how much time has gone past now since this actu-
ally occurred. I mean, it has been almost 18 months to 2 years.

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And we still have businesses that have little guidance from the
IRS, little education on who qualifies, and very little customer serv-
ice, which all my small businesses are really struggling with.
So, my question is this. Mr. Gray, what can we do, solution? It
seems like there is a lack of education or there is a lack of IRS
guidance on the ERTC. And, obviously, it is creating fraud, related
to fraud.
Do you have any solutions on what we can do in this area?
Mr. GRAY. Excellent question. I am glad you asked it. I will try
to be quick.
Number one, like offshore accounts and they did with the
cryptocurrency, send out some soft letters, send out. So, if they
right now would send a letter to everybody that has got the credit
and everybody in the future and in this letter say, ‘‘You need to file
the amended return, the income tax return, here are the most com-
mon reasons,’’ like they just issued this counsel memo on the sup-
ply chain——
Mr. FEENSTRA. Yeah.
Mr. Gray [continuing]. That right there, that letter yesterday
changed a client.
So, communicate in this letter these are the most common mis-
takes that are being made, offer an amnesty program to where that
if I—a not-for-profit yesterday in Atlanta, the woman is a volun-
teer. She signed it, and she now realizes it is wrong.
Mr. FEENSTRA. Right.
Mr. GRAY. But now she doesn’t have any guidance on how to
give it back.
Mr. FEENSTRA. Correct.
Mr. GRAY. So, when people want to come forward and say, ‘‘I
made an honest mistake, I didn’t know,’’ allow an avenue to do
that.
On the 941–X, start today and say there is going to be account-
ability to whoever is assisting and doing that clerical work, who are
you, sign it, what is your fee—or how are you charging. But my
point of it is, is that type of stuff is even bigger than the guidance.
And then, finally, IRS doesn’t have a permanent chief counsel.
Mr. FEENSTRA. No.
Mr. GRAY. And that is who I look at and the taxpayer looks at
to get guidance. So, what do you expect?
And that is why I said in my testimony it starts at the top. Who
is in charge to make that appointment? And why take so long? I
don’t need to know the answer. Just get it done.
Mr. FEENSTRA. And, Mr. Gray, you are exactly right. I mean,
frankly, it does start at the top, and it starts with the IRS. It starts
with putting the right people in place. Just like any business. You
have to answer, and you have to have customer service, and this
is not happening.
Mr. GRAY. Yeah. It may even go higher than that.
Mr. FEENSTRA. Yes.
Mr. GRAY. Because who appoints the chief counsel?
Mr. FEENSTRA. I get it. I hear what you are saying. Yes. And
why isn’t that happening?

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Mr. GRAY. It will help the IRS out. It will help the taxpayer out,
the small business out, and our rural communities.

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Mr. FEENSTRA. That is correct.
So, I have got another question. This is for Mr. Harris.
Mr. Harris, so I have a situation, a small business. It is a family-
owned business. And they employed some of their family during
this time. And we had multiple attempts by the owner, by our of-
fice, to figure out if they qualified or not.
And, ultimately, the IRS cited the Work Opportunity Tax Cred-
it—and this is the quote—‘‘conceptually designed to prevent family
members from taking advantage of wage subsidies where there
isn’t a true employee relationship.’’
But all these small businesses on Main Street Iowa, Main Street
USA, they employ family.
Mr. HARRIS. Exactly.
Mr. FEENSTRA. And this is my biggest problem.
So, my question to you, Mr. Harris, is do family-owned and oper-
ated businesses—how do they get some of these dollars and how
can they provide documentation that proves that they are not
fraudulently collecting for the ERTC?
Mr. HARRIS. Well, I want to say go to a mill, because they don’t
care. But that is not the correct answer.
It is a challenge. And we got guidance on that partly into it. So,
you had people who had already applied, and then we found out
that family members have this rule. And now we are hearing that
maybe they don’t have this rule.
This is another example of where we need clear, permanent guid-
ance so that the people can rely on what they are doing, because
honestly—and Larry can speak up—I don’t think they qualify
under the IRS rules today, but I don’t know what it will be tomor-
row.
Mr. FEENSTRA. Right. But they just need clarity.
Mr. HARRIS. They need clarity.
Mr. FEENSTRA. Bottom line.
Mr. HARRIS. Because then you don’t file.
Mr. FEENSTRA. They just need to know.
Mr. GRAY. If that is a hypothetical, they don’t qualify.
Mr. FEENSTRA. Thank you.
I yield back.
Chairman SCHWEIKERT. Ms. DelBene.
Ms. DELBENE. Thank you, Mr. Chairman.
And thanks to all of you for being with us today. I appreciate it.
I first wanted to share a quote from a restaurant owner in my
district about the impact of the ERTC on his business during
COVID.
Parker Sjolander, who owns a restaurant in Bellevue, stated that
his business, quote, ‘‘relied on the ERTC to keep the lights on and
our workers on payroll. While ERTC refunds took almost a year for
many restaurant operators to receive, it was incredibly important
to help sustain operators during mandatory shutdown orders and
pandemic-related challenges,’’ end quote.
So while the ERTC provided many small businesses with nec-
essary resources to keep their businesses running and employees
on payroll throughout the pandemic, we know that many experi-

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enced significant delays and attempts to defraud them, as has been
discussed.

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This is a clear example of why we need to make sure that the
IRS also has the resources to effectively combat potential fraud and
abuse and ensure timely processes of refunds. They can’t do it if
they don’t have people and resources.
I wanted to start with you, Mr. Harris. In your experience, can
you describe how fraudulent applications impact small businesses
that unknowingly worked with ERTC mills?
Mr. HARRIS. Well, it will eventually if they are subject to an
audit. It could ruin them. Because by the time the IRS comes in
and makes the determination that they weren’t qualified, this huge
sum of money that is probably being infused back into the business
is no longer sitting in the checking account. And yet the solution
is you have to pay that back and most likely with penalties and
interest.
So, I mean, it could—the joy of getting the money could very
quickly be replaced with the terrifying reality that because you
weren’t eligible, you could be put out of business because of the
amount of money you now owe back to the Federal Government.
Mr. GRAY. If I might add to that. That example of that not-for-
profit person yesterday realizing she had been hooked, crooked,
whatever, and she wants to pay it back, don’t let that interest and
penalty run. Have that amnesty. Have a process of how to come
clean.
The other thing, if she would have got that—if at the time it was
filed, if she had had to provide documentation on qualifying on that
941–X, maybe the money would have never went out and saved
that business.
Ms. DELBENE. Thank you.
Mr. GRAY. Thank you.
Ms. DELBENE. Thank you.
Ms. Czipo, can you describe how additional resources for ERTC
education and outreach would have helped nonprofits and small
businesses that were seeking relief?
Ms. CZIPO. Sure. I mean, the first thing is they would be aware
of the program.
Secondly, we still hear from nonprofits that think that because
they got PPP, they are not eligible for the ERTC. Of course, that
was the case at the beginning, but then it was changed.
Better, more clarity with respect to what those eligibility require-
ments are, what it means to have reduction in gross receipts, all
of that, the more information they have at the outset that is clear,
then they are more equipped to apply and get the relief that they
need sooner.
There is no question that education is absolutely key to this proc-
ess, and it will help to stave off all of the bad actors that we have
been talking about.
Ms. DELBENE. And just to follow up on that, does the IRS’ focus
on increased ERTC auditing disproportionately impact some busi-
nesses, like disadvantaged or minority-owned small businesses?
Ms. CZIPO. It could. I mean, part of the issue is there are some
organizations that, because of the complexity, were perhaps shut
out of the process or less inclined to apply because they didn’t have

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the resources to hire a reputable accountant, or they just didn’t
have the bandwidth to look into the complexity of the rules.

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And, of course, the fear of an IRS audit or there are certain orga-
nizations that may deal with constituencies that may be a little bit
more reluctant to apply.
So, again, it goes back to making sure that there is good edu-
cation and that the program is structured so that maximum access
is allowed for organizations at the grassroots, at the rural level, or-
ganizations serving marginalized constituencies, and a lot of other
folks that might be shut out.
Ms. DELBENE. Thank you.
Thank you, Mr. Chairman. I yield back.
Chairman SCHWEIKERT. Mr. Fitzpatrick.
Mr. FITZPATRICK. Thank you, Mr. Chairman. I want to thank
the chairman for holding this hearing.
The volume of casework that my office has received on ERTC
issues since January alone has been mind-boggling. The inquiries
my office submitted were on behalf of a whole host, a range of orga-
nizations, including veterans organizations, small businesses, sen-
ior homes, just to name a few.
And one of my constituents was owed almost $300,000 and need-
ed it immediately in order to keep their business doors open. An-
other constituent had difficulty getting the IRS to even confirm
that they had received their application.
Lastly, my office received—this is one instance—a complaint
from a constituent who had applied for ERTC for the years 2020
and 2021 but never even received a credit until the end of 2022.
Most small businesses do not have the luxury of time when it
comes to these issues.
As you all know, the ERTC touches just about every sector of our
businesses and our local economies, and there are dozens more sto-
ries like the ones I just referenced in districts across America.
Our small business owners deserve better. They deserve better
customer care and better service from the IRS.
I will start just with you, Mr. Gray. If you could describe, specific
to your experiences, in communicating with the IRS over ERTC
claims.
Mr. GRAY. Okay. In communicating with them, I have, like
Roger, an unusual opportunity as a small practitioner that I get to
come to D.C., and it was virtual.
The communication, it is open. We communicate through the na-
tional public liaison. I work with local liaisons. You can work with
the Taxpayer Advocate.
I think one of the things that is missed by the small preparer
in the small communities is that the Taxpayer Advocate actually
will assist the tax professional. But they are being overrun with re-
quests.
So, I think, one, there was not enough communication. There was
not enough guidance. Some of us at the table have been asking for
what we call the soft letter to get out there for a couple of years.
FAQs communication are not being updated.
A real quick example. There was a memo from counsel on the
supply chain. I used that yesterday to convert a person that was
going to get a million dollars. That one communication stopped a

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million dollars going out that, as Roger referred to, when the IRS
would show up for an audit, could put them out of business.

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But more communications, more channels, more outreach. But
until they get guidance, until the IRS communications, liaisons,
until they get guidance, they can’t put it out. So, if it doesn’t exist,
there is no communication, no matter how many times we have a
conversation.
Mr. FITZPATRICK. And I will leave it to the rest of you on the
panel. Any feedback you have for us regarding specifically what the
IRS can be doing differently when it comes to their ERTC chal-
lenges, in terms of the structure of the IRS, the manpower at the
IRS, the resource allocation?
Mr. CLEARY. Well, the big thing, and you hear it a lot today—
and I am sorry Ms. DelBene left. I was going to volunteer her,
given her technology background. They need technology.
I mean, we mail stuff. Our members mail stuff, and they fax
stuff. And when we come and talk to your young staffs about the
problems we have, we have to tell them what a fax machine is first
and then go from there.
So, they are using fax machines and mail and not email. I mean,
that is just a first shot out of the box, I think, to improve tech-
nology.
Mr. HARRIS. And I would agree with that. As Larry mentioned,
we are fortunate that at our level that we can have one-on-one dis-
cussions with people here in Washington. But I think it is impos-
sible for a small business owner to pick up the phone and call the
IRS and find the status of their claim, because it wasn’t a priority.
We have to put technology in place and understand that when
people send things in, they expect them to be logged somewhere
and a status report being available.
So, technology is a huge part of what the IRS needs to embrace
and use it to improve customer service, not just their own ability
to do certain things better.
Ms. CZIPO. I would just also add that people power matters too.
Certainly the IRS has an exempt organization office that in some
cases, when it has been better staffed, was a godsend, to just be
able to help, talk to a human being, ask questions about guidance.
And in this particular circumstance, when you have such a com-
plex web of rules and regulations, having somebody to talk to about
your own situation—the FAQs absolutely—but having a human
being also helps too.
Mr. FITZPATRICK. Okay. My time has expired. But I want to
thank you all for your time today. Thanks for being here.
I yield back.
Chairman SCHWEIKERT. Thank you, Mr. Fitzpatrick.
Ms. Moore.
Ms. MOORE. Thank you so much, Mr. Chairman.
I just want to thank this panel for the master class. And I forgot
who said it, but when you spend this much money in the middle
of a pandemic and you must push the money out very fast, the
fraudsters just show up. They are just there.
And I also appreciate the fact that you talked about, I mean, the
IRS was also one of the agencies where people weren’t at work. I
mean, people were sending in mail to empty desks.

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With that being said, I just can’t resist mentioning that the re-
quest for $80 million to add to the IRS, this is a perfect reason why

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we ought to do it. Because the Employee Retention Credit is not
the only kind of fraud we have to deal with the IRS. We also have
to deal with the fraud of people who know that their tax returns
are so complicated, so complex, that they can’t be caught and won’t
be audited because we don’t have those resources, notwithstanding
the fact that you mentioned the technology. I mean, I have been
on the phone with the IRS and able to cook an entire chicken din-
ner meal while I wait on the phone.
I am happy to know that the IRS, they have seen more than 2.5
million claims since the program was enacted, and that they have
caught up with the backlog. As of the week ending July 24, more
than 99 percent of the cases are current, meaning that they are 3
months old or less. And they are seeing—doing 70,000 claims each
week.
I did meet some of the mills. They came right into my office this
week. And I shared with them that I was unhappy that they were
in operation. And so I think they left my office willingly.
I just want to say while I have the mike that it is heartbreaking
to know that we are still working to get people their money, many
small businesses, and to think about how eager we were to claw
back money in healthcare and money that children needed and the
rescissions that we made, and we did not even think twice about
lending more time to those programs.
So I am happy to know that there are 500 ERC-trained exam-
iners and auditors, and so we are looking forward to them catching
up.
I would like to yield time to my CPA’s son. And that is child
abuse, by the way, to make them work.
Mr. SCHNEIDER. I will tell stories.
Let me just ask real quick questions, because I think we are
wrapping up.
Raise your hand if you think more effective compliance by the
IRS would lead to less fraud?
Okay. Just to make it easy, everyone raised their hand.
Raise your hand—and I think we have heard this today—if we
had greater capacity to process returns at the IRS, that would be
a good thing.
Everyone agrees, so it is unanimity.
And capacity is really a function of having people with training
and technology tools so that we should be investing in our people
and our technology. Raise your hands if you think that is a good
idea.
So this is a setup. Does anyone want to raise your hands to say
it is a good idea that we take money away from the IRS?
I don’t see any hands raised. I think the point being is we in the
last Congress made sure that the IRS was getting the funds to
begin the process of bringing on more people with the skills to do
their work more efficiently and give them the technology tools to
do so.
I hope that we can take from this hearing the lessons that it is
time for us to work together, Republicans and Democrats, to make
sure that the IRS is serving the American people, giving them the

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guidance and information they need to file timely, giving their ad-
visers, like you on this panel, the information you need to give the

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advice to your clients to file timely, and having the technology in
place that we can process those returns, get the refunds to our citi-
zens, and make sure that we have the best, most efficient, most ca-
pable IRS possible.
I yield back.
Mr. CLEARY. Mr. Schneider, if I may, after that setup, because
it was brilliant. It really was good.
I spent 10 years in the Federal Government in the executive
branch, and nobody ever has enough resources, ever. And so, you
have to triage. You have to. And you have to prioritize. In this
case, again, when the Commissioner put a surge staffing on this,
the numbers started going down.
So, our request today is keep that surge in place until that num-
ber is zero.
Mr. SCHNEIDER. I will share that with the Commissioner be-
cause I agree with you.
I yield.
Chairman SCHWEIKERT. You yield to Ms. Moore.
Ms. Moore——
Mr. SCHNEIDER. I yield to Ms. Moore. Thank you.
Ms. MOORE. I have to yield back. I did know that.
Chairman SCHWEIKERT. No. I just—and thank you for—you
have actually tolerated a couple of our hearings today, and I really
appreciate you.
Ms. MOORE. I am so hot and so tired. If I could make it on Au-
gust 1, I would do it.
Chairman SCHWEIKERT. I am just upset you have never in-
vited any of us to your chicken dinner.
Ms. MOORE. Listen, just hook up with one of my grandkids,
they will get you there.
Chairman SCHWEIKERT. All right.
Panel, a handful of things I want to get my head around, and
there is actually a reason I waited till the end.
First off, I have one thing here. It says the IRS considers 6
months within the window of still being timely. I had someone say
3 months.
Do any of you know what the IRS’ running definition is of some-
thing that is still timely?
No? And that may go back to Mr. Gray’s comments of some of
the things, that we just desperately are hungry for information.
Mr. GRAY. Right. And the other thing to think about, as we
move technology—as the IRS moves through better technology, the
other thing is the IRS a lot of times has got to think non-paper,
because a lot of times they will take a new technology, but they
keep the old process. And sometimes that is not the most efficient.
Chairman SCHWEIKERT. That is fair. But look—I have no idea
what is beeping over there.
Look, there is a number of us, and since my time on the Ways
and Means Committee, we are trying to get the IRS off of its own
servers, off of its own storage. If the Department of Defense can
use an encrypted world out there, the IRS can too.
I will give them one credit. It is not a non sequitur. They actu-

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ally did a small experiment with a ChatGPT type model of call-ins,
and it worked. And there is a model actually here of instead of an

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army of human beings to actually be picking up the phone, some-
times you need someone who will stay on the phone with you for
45 minutes to help you fill out the forms. Turns out that they had
a really good, positive experience with that limited experiment.
And so, for many of us, the constant debate here is sometimes
it is: What is resources? Is it the next-generation technology to do
it better, faster, and to mine data to find bad actors? Or is it an
army of people that functionally become very expensive when I
have to figure out how to finance the pensions and healthcare and
those other things? It is just the reality of my world.
But there is a handful of things I really want to get my head
around.
Okay. Right now, let’s actually say how many—what is your esti-
mate of how many of these ERTC claims are still to be processed?
What is, from your expertise, what is out there?
Mr. CLEARY. Well, the IRS would say about 500,000. But,
again, remember the 250 that are PEO claims represent probably—
I mean, I wouldn’t even guess—but tens or maybe a hundred thou-
sand additional claims.
Chairman SCHWEIKERT. Okay. So, 500 plus 100?
Mr. CLEARY. Yeah, ballpark. That would be a good ballpark
number.
Chairman SCHWEIKERT. So, 600.
Gentlemen, would you all agree that there may be 600,000 out
there.
Mr. HARRIS. I think that probably is the right number. The
Commissioner in his meeting in Atlanta—and I can’t remember
what day.
Mr. GRAY. The day before yesterday.
Mr. HARRIS. The day before yesterday also said that typically
when programs like this are created, that you see this arcing down
of claims, and yet they are not seeing that, and they are attributing
that to the mill.
So, I think the wildcard in this is how much of this fraudulent
activity is causing these numbers to stay inflated when naturally
these programs at this point in time would have been declining.
Chairman SCHWEIKERT. Gentlemen, if there was a technology,
what could we do—I have heard the discussion of grabbing one of
the proper forms and requiring that, some gross receipts on part
of the app.
What would be the fastest way to quickly shut down the bad ac-
tors?
Mr. GRAY. First, do an amnesty, because there are people out
there wanting to pay it back.
But here is what happened——
Chairman SCHWEIKERT. We are going to get to the amnesty.
Mr. GRAY. Okay. Well, in the deal, make a deal with that small
business to say help us find more of them. Because in this you are
going to get a lot more bang for your buck if you can get some co-
operation from the LLP, so they can start finding the bad actors
and have a way to take action against them. Because there is a due
process and the bad actors are going to lawyer up, and it could be

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10 years from now.
Chairman SCHWEIKERT. Well, that is sort of the second part.

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But, Mr. Harris, if I had to stop for those folks who were getting
solicited today who have not filed, what could the IRS do almost
immediately in rules, requests, and RFQs, those sorts of things, to
stop bad actors?
Mr. HARRIS. Yeah. They are obviously losing the PR battle in
the marketplace. That is hard for them to win. They don’t turn to
IRS, small businesses, first for information.
I think you are going to have to empower the community that
Larry and I work in. That is where the businesses are coming to
when they are getting solicited.
And it is hard to say this, but enforcement is ultimately what
slows down the cheaters, the fear of getting caught. And right now,
there is not a great fear.
I think the system is being overwhelmed by the bad actors to the
point that everybody thinks they can take a chance because the
chances of getting caught are nothing. And that has to be changed
somehow.
Mr. GRAY. Right now, it is a business decision, not a compliance
decision.
Mr. CLEARY. Yeah, I agree with that. And, again, it seems over-
simplistic, but if you clear out the backlog, the mills are going to
dry up.
Ms. CZIPO. And there is also the issue of penalties, just making
sure that there are—right now there are not a lot of disincentives
for the scammers that are out there. So upping the penalties.
I don’t know, I am not an attorney, so I don’t know if it is pos-
sible to put guardrails around the payment structures, the exorbi-
tant loans, the exorbitant contingencies, all of that.
So those are just some of the things that I would add to the mix.
Chairman SCHWEIKERT. Interesting. Because as we were hav-
ing a discussion here, Mr. Pascrell and I were actually trying to
discuss, oh, heaven, we may now actually have how many thou-
sands, tens of thousands of small businesses that answered that
call and now all of a sudden realize they have gotten a check either
dramatically more than they should have or shouldn’t have gotten
one at all, they don’t actually qualify. How do you unwind it?
And, okay, so let’s say you do an amnesty. We do a policy set say-
ing here is our amnesty. Is an amnesty where you credit back the
contingency fee they paid? Or if they prepaid, as we have had some
folks contact our office saying, ‘‘Hey, I am being asked to pre-pay
a retainer fee.’’
Any brilliant ideas on how you would unwind the number of
small businesses out there that have functionally been scammed,
but it is also the American taxpayers who have been scammed?
Mr. HARRIS. Right. We have all.
Yeah, I think you do have to recognize—and the Service has said
they are recognizing the fact that a large percentage of the money
they did not receive. So, we have to come up with some way of ac-
knowledging that money you didn’t receive is either paid back
later, not paid back at all.
I think also you have to make this amnesty have a very firm

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deadline to create an urgency to come forward and know that if you
don’t come forward by a certain date, you lose this benefit, to flush

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out what is in the system, if you will, by creating an urgency to
deal with it.
Chairman SCHWEIKERT. Okay.
Mr. HARRIS. But you have to deal with the fact that they gave
up 20 to 25 percent of that money and never saw it.
Mr. GRAY. And also, I think it is one of those look back, lesson
learned. I worked 20 years ago on a project for voluntary compli-
ance to switch for small business. I should be paying wages, but
I am not.
Well, what they did, the amnesty there was to say if we get
there—if you come and volunteer and you have been doing 1099s,
you can flip over to W-2 wages, and they literally almost forgot
most of that money.
But the point is first look at lessons learned to process. When
there was the offshore stuff, there was a way to come forward, but
it was through the soft letter.
So, again, I go back to if part—you could actually look at paying
this out faster as long as you had more of a—you are getting the
money, but you are also agreeing to this additional compliance.
Chairman SCHWEIKERT. Okay. So, if we were to do, imme-
diately off the top of our heads, our checklist, we need a whole
bunch more rules checklist, so you could go on the website and say,
look, here are your compliance rules. Requests that when filing for
your forms that there is some tags on that that actually have infor-
mation that would be——
Mr. GRAY. Here would be a great one: documentation. A lot of
these mills are providing no documentation.
And so, if I am the mill and this is my small business person
that participates, if you send him a letter saying, ‘‘Do you have the
following documentation?’’ Roger is going to go, ‘‘No.’’
Well, if you don’t believe you do, don’t call the IRS. Go to a trust-
ed tax preparer. Because then there is opportunity.
Because there are a lot of people that have been innocently get-
ting this. I don’t think the taxpayer—the small business themself
is not—for the most part, they are the innocent one.
Chairman SCHWEIKERT. We, obviously, have the concern of
awarding the bad actors.
Also, electronic portal. The form is electronic. You put it in. You
can immediately see it because it makes it dramatically easier to
track.
Mr. GRAY. Yeah. And see, right now the IRS has started the on-
line taxpayer account, but they haven’t really stood up the online
business account.
So, there is where, if technology was set in there, then any com-
munication, that would help free up human resources because they
could be pushing this.
Where is this? We have received your application. We have ques-
tions on the application. That could be pushed electronically and
tracked instead of, again, having these paper files.
Chairman SCHWEIKERT. All right. What else would you add to

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the checklist?
Mr. CLEARY. I mean, to me, all roads lead to technology.

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Mr. GRAY. Yeah. But the documentation, the one yesterday, the
lady said, ‘‘They didn’t give me any documentation.’’ So, if I have
no documentation, that is the first indicator.
If you have had to pay 15 to 30 percent, that is another indicator.
So, I think, again, the communication—which they already have
systems set up to do that. That communication to everybody that
got one of these credits, both in the past and in the future, but in
the future to clip it off and stop it is to say send certain—have a
checklist. Do you have this kind of documentation? Here is what
we are going to be looking for in an audit.
And the fear of the audit will have more impact than the audit
because the IRS does not have the resources to audit out of this.
Chairman SCHWEIKERT. With some of this there are some
mechanisms to do the audit electronically or through data mining.
Mr. GRAY. Yes.
Chairman SCHWEIKERT. But you are absolutely correct. And I
fear—I despise the concept that the fraudsters get away with this
and the small businesses actually end up in the position of being
punished.
Mr. GRAY. One of the—when I was doing these YouTubes and
shopping the market, so to speak, to find out the bottom line, was
one of them said, ‘‘Well, IRS is not auditing.’’
‘‘Is your income under 400,000?’’
You know where they are going? I am getting a double free pass.
This is getting—this is much bigger than the issue on the table
today. Downstream compliance, there is going to be so many—what
about the income tax amended return? Right now, with what OPR
issued in March, I, as a CPA, if I first have to determine if Roger
went to somebody else to do the 941-X, Roger says, ‘‘Larry, I would
like for you to do my return,’’ and I either don’t understand the
rules or I have advised him not to do it, I cannot help to get up
to a third of that money back in the Treasury from the income tax
adjustment.
So, I am now saying best client, the one that I referred to earlier
in southern Illinois, it was the fact that she lost her best client be-
cause she said that—so there is more to this than just the credit.
It is impacting downstream compliance for years to come.
Chairman SCHWEIKERT. Okay. I am going to do something a
little awkward because I still have one or two more things I want
to touch on. But Ms. Malliotakis was kind enough to come back
and spend some time with us.
Your 5 minutes.
Ms. MALLIOTAKIS. I feel like I am seeing you too much today.
We started the day——
Chairman SCHWEIKERT. Yes, I get that a lot from my spouse.
Ms. MALLIOTAKIS [continuing]. A lot of hearings today.
Well, thank you. Thank you all for coming today. And I appre-
ciate and have the opportunity to read the testimony.
While the ERTC’s intent to support these struggling businesses
during what was a challenging time is commendable, the lack of
sufficient guidance and regular updates from the IRS has led to un-
certainty and vulnerability for small businesses to be exploited by

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fraudsters and predatory practices of scammers. And I know that
you touched on this.

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Lack of clarity in the IRS guidance has led to confusion, left
many small businesses in the dark. They are unsure of how to
properly assess their eligibility or navigate the complexities of
claiming the credit.
Lack of communication and status updates from the IRS adds
another layer of uncertainty for small businesses. Businesses are
relying on outdated information, leading to inadvertent errors in
their claims or even missed opportunities to access the support that
they desperately need.
The absence of a clear procedure to correct unintentionally inac-
curate claims exacerbates the situation. Small business owners
who make genuine mistakes in their ERTC claims face the risk of
penalties and additional burdensome paperwork. And this discour-
ages some of our entrepreneurs from even attempting to claim the
credit, fearful of potential repercussions of unintended errors.
Regrettably, the combination of insufficient guidance, lack of up-
dates, and unclear procedures has created an environment ripe for
fraudsters to exploit these vulnerable small businesses.
And as a legitimate business struggles to understand the intrica-
cies of the credit, bad actors may take advantage of the confusion,
leading to false claims, misuse of funds, and fraudulent activities.
This not only diverts critical resources away from those who
genuinely need them, but also undermines the integrity of the
ERTC program as a whole.
In light of these changes, the IRS must take immediate action
to address these issues, providing clearer, more comprehensive
guidance on ERTC eligibility. And clean procedures, as well as reg-
ular updates, are imperative to ensure that small businesses can
access the support that they deserve and that they are warned that
there are these fraudsters out there.
Equally as important is the establishment of a transparent and
efficient process for correcting unintentionally inaccurate claims.
The ERTC’s effectiveness in aiding businesses that struggled
through the pandemic depends on the IRS’ commitment to pro-
viding sufficient guidance and regular updates.
Without addressing these issues promptly, we risk perpetuating
uncertainty and leaving these small businesses vulnerable to the
exploitation by fraudsters.
So, I will start with Mr. Gray.
I am extremely concerned about the small businesses in my dis-
trict that were misadvised by aggressive ERC promoters and im-
properly claimed the credit. It seems like those businesses may get
hit with a double financial whammy. The business is going to have
to pay the IRS back on the improper claims; and then, second,
those businesses may not be able to recoup the fee, which was
probably substantial, that they paid to the ERC promoter.
Can professional tax practitioners, like CPAs, help businesses
now that unintentionally claimed an unsubstantiated ERC, or is it
too late? What would you advise?
Mr. GRAY. Well, the first thing is what I just referred to a cou-
ple of minutes ago. This notice from the Office of Professional Re-

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sponsibility, I have to comply with that. The fraudster doesn’t have
to. And in that statement, it says that if I assist an income employ-

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ment or excise tax in order to assist, I have to be knowledgeable
of the ERC.
And ERC is a payroll question, and a lot of practitioners, espe-
cially small practitioners, may not do payroll tax, so they are not
aware of the rules. But yet they are coming forward and saying,
‘‘I need help with the 1040 tax return.’’
Based on that rule, if I follow the guidance, my answer is, ‘‘I
can’t help you.’’ And that is a sad day, because I ethically, through
my standards, through AICPA, my standards are that I am to help
get people right. So, if somebody comes—because what is it, Roger?
It says if we do that, we might be——
Mr. HARRIS. Perpetuating the claim.
Mr. GRAY [continuing]. Perpetuating the claim, if we are helping
to put money in the Treasury.
The other thing would be to be able to get the guidance. In April,
I think it was, that they had within the IRS an audit and CI, they
were going to get a team together and do something.
Roger, have you heard back from that?
Mr. HARRIS. Not yet.
Mr. GRAY. Me neither.
So back to how many months. We continuously ask at the table,
let us—include us not in the communication out, but we will work
with you working on the project to help solve the problem system-
ically.
So, I think letting practitioner groups, associations, payroll, in-
come tax, all the organizations, we have offered to help. Please
take our offer because then we can work to answer your question
much better.
Ms. MALLIOTAKIS. Yeah. Just one more question, if the chair-
man allows. Now that he is busy, let me ask.
The IRS is going to find clear instances of fraud, but also prob-
ably going to find cases where a well-intentioned business or non-
profit was misled by an ERC credit mill into taking a larger credit
than they were eligible for or cases where the ERC mill has pro-
duced large volumes through baseless—though baseless report on
why a small business or nonprofit qualified for the ERC.
How at all do you anticipate the IRS will distinguish these dif-
ferent cases? I mean, do you think the IRS has the resources to be
able to distinguish between clear cases of fraud and cases that
aren’t so clear?
I guess your last answer kind of said, if they couldn’t get you this
information, it has been months, I imagine that will be——
Mr. GRAY. Roger, I will follow you.
Mr. HARRIS. They are not going to be perfect in it because it
is one of these facts and circumstances cases.
They do that somewhat routinely in terms of allowing deduc-
tions, charging fraud versus things. But it is not going to be per-
fect.
I think what we have to ensure is that if a taxpayer, a small
business owner, believes that they have been found improperly,
that they have the proper process for appealing that because it is

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going to be left up to a facts and circumstance in an individual
case.

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Mr. GRAY. And that is why there has to be a due process so
that—because if that taxpayer on the first contact has no represen-
tation, like myself, then they should be able to have, ‘‘Hey, can we
appeal this, or can I talk to a manager?’’ That process is in place
on examination.
But, again, I think the sooner there is inclusion of practitioner
groups more involved in setting up the way to go.
See, if we could go back three and a half years, normally you
would have seen an ERC implementation team. And the reason
why that didn’t happen is because the pandemic was going on, they
were working at home. So, it wasn’t like they had all the resources.
But it is never too late, as the chairman said, to snip it, and we
are here to work with the IRS to snip it.
Ms. MALLIOTAKIS. Thank you.
Chairman SCHWEIKERT. Thank you, Ms. Malliotakis.
And as being someone who is about to run to the airplane.
Mr. GRAY. Don’t get in front of me.
Chairman SCHWEIKERT. Thank you for being here today.
I am going to request something from all of you and anyone that
is out there listening. This is something we are going to have to
try to persuade the IRS, and with our—through memos or what-
ever, we need a solution. You brought something to us that I am
not sure I was completely mentally prepared, is how do we unwind
the charities, the small businesses that have functionally been
scammed?
Mr. GRAY. And, again, I am going to say, we have an oppor-
tunity. We have got a new Commissioner. There is no blame.
Chairman SCHWEIKERT. But the scale of it is my great con-
cern, is I don’t know if I had enough practitioners to actually un-
wind the scale. So, some of this may be guidance. How do I use
technology? How do I automate? How do I do it quickly? And how
do I stop the hemorrhaging?
So please send us ideas.
And the last thing they always have me read is, please be ad-
vised that members have 2 weeks to submit written questions to
be answered later in writing. Those questions and your answers
will be made part of the formal hearing record.
And with that, please send us your ideas.
And thank you for staff. You have been very patient in helping
put this together and everything is appreciated.
And with that, let’s all run to the airport.
[Whereupon, at 4:11 p.m., the subcommittee was adjourned.]

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PUBLIC SUBMISSIONS FOR THE RECORD

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