WASHINGTON IS TAKING NOTICE

A few weeks ago, the National Taxpayer Advocate released her annual report to Congress, flagging two major challenges facing the IRS. Not coincidentally, after years of sustained engagement on Employee Retention Tax Credit (ERTC) processing delays and consistently ringing the alarm bell about the urgent need for IRS modernization — NAPEO’s priorities are of utmost concern to IRS watchdog.

That recognition reflects the steady, coordinated advocacy of NAPEO and our members. When we speak with a clear, unified voice in Washington, regulators and policymakers listen. While there is certainly more work ahead, this acknowledgment underscores the impact our industry can have when we remain engaged and persistent.

Not to be outdone by the Taxpayer Advocate, the Government Accountability Office (GAO) recently released a report on the ERTC processing backlog (I spoke with the GAO for this report in mid-2024, so they were thorough…).

The GAO’s findings were straightforward: the IRS must communicate about the status of ERTC claims, and that reliance on paper filings significantly contributed to the delays. The report recommends meaningful investment in digitization and technology modernization at the IRS — a position NAPEO has championed for years, including our ban the fax machine campaign launched last year. Of course, the challenges surrounding ERTC claims extend well-beyond paper processing.

The confluence of these two reports, and inconsistencies between IRS claims within them and what our members are hearing, led to a NAPEO letter to IRS CEO Frank Bisignano asking for clarification.

Earlier this month, the House Ways and Means Committee held a hearing with Mr. Bisignano. I was encouraged to hear much discussion on the need to modernize the IRS, including his pledge that he is “laser focused on creating a digital IRS.” However, while reforms for the future are welcome, outdated technologies and misguided policies of the past continue to hurt our members’ clients and PEO industry champion Rep. Kevin Hern pressed him on these issues during the hearing.

Not only do we still need answers on the flawed ERTC process, we also need to ensure the government never puts us between them and our clients again. That is why we introduced H.R. 3223 last year to clarify that liability for a payroll tax credit rests with the entity that benefits from the claim. This bill would deflect the rampant fraud that has restricted access to actually earned tax credits by PEO clients, and save the government billions of dollars.

We are continuing to build support for this important legislation in the House and engaging senators about introducing companion legislation in the Senate. We are also working to advance the bill through the House Ways & Means Committee — the next critical step in the legislative process.

As our industry grows, so too must our presence and influence in Washington. We cannot afford to assume that lawmakers and regulators fully understand the unique nature of the PEO relationship. It is our responsibility to ensure that policies are crafted with that understanding in mind.

The fact that two independent government agencies have now elevated the very issues NAPEO has been leading on demonstrates that our strategy is working. The opportunity before us is to build on that momentum — to ensure that policymakers proactively consider the PEO model.

I remain optimistic about the progress we have made and bullish on what’s to come as a result of our focused, collaborative work designed to improve the business and policy environment for PEOs.