In a Senate Finance Committee hearing on June 7, 2022, Senator Maggie Hassan (D-NH) questioned Treasury Secretary Janet Yellen about the Employee Retention Tax Credit. She asked:
“In 2020, I helped lead a successful bipartisan effort to ensure that all small businesses struggling during the pandemic had access to tax cuts through the Employee Retention Tax Credit. However, I’ve heard from small businesses in New Hampshire – such as Smuttynose Brewing in Hampton – who are still waiting on Treasury to send their full Employee Retention Tax Credit payments. Madame Secretary, what is Treasury doing to clear the backlog of Employee Retention Tax Credit claims and ensure that small businesses receive this tax relief as soon as they can?”
Secretary Yellen responded:
“Senator, I’m aware of this problem, and what I can tell you is that IRS is working as diligently as it possibly can to clear what is a huge pandemic related backlog. Things that are filed in paper, IRS is still in the process of opening these. I think a lot of these Employee Retention Tax Credit filings were paper filings that are part of this backlog, and I think that’s partly responsible for the delays. I think there will not be penalties for situations that arise where additional income tax may be owed, and the taxpayer is waiting for this refund payment to be able to pay taxes owed; penalties will be waived. I know that the IRS has issued some guidance and has told these filers that they may be eligible for relief. It is a very regrettable situation, and IRS is working as rapidly as they can to solve it.”
The penalty relief guidance referenced by Secretary Yellen is IRS news release IR-2022-89 which states, in part:
“Taxpayers that claimed the ERTC retroactively and filed an amended income tax return reducing their deduction for the ERTC qualified wages paid or incurred in the tax year for which the ERTC is retroactively claimed have an increased income tax liability but may not yet have received their ERTC refund. This release reminds taxpayers that, consistent with the relief from penalties for failure to timely pay noted in Notice 2021-49, they may be eligible for relief from penalties for failing to pay their taxes if they can show reasonable cause and not willful neglect for the failure to pay.”
The Secretary’s statement sounds somewhat more definitive than this written guidance, and taxpayers should be able to reference her comments if the IRS attempts to assess a penalty related to this issue.