Pandemic Support For Small Businesses Turns Into IRS Nightmare

Many small and medium-sized businesses face a troubling tax season amid Internal Revenue Systems (IRS) backlogs and delays, primarily because of the pandemic programs designed to help them.

The IRS is reportedly experiencing a backlog of 23 million items due to limited operations and worker absenteeism during the COVID-19 pandemic. They plan to hire 10,000 workers to combat the buildup of items. However, at the moment, Certified Public Accountants (CPAs) find it nearly impossible to reach anyone when calling the IRS with questions. The entire process is worse this year than ever, said Gene Marks, owner of small business consulting firm The Marks Group.

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The IRS’s extreme volume of items comes from altruism on their part, said Scott Orn, Chief Operating Officer of Kruze Consulting. Many small businesses were saved by government programs such as the Employee Retention Credit (ERC) or the Paycheck Protection Program (PPP). However, the burden then fell on the IRS to keep the paperwork organized, and reduced staffing due to COVID exacerbated the issue.

“I’ve never seen this in my career,” Orn told Al Jazeera. “That additional administrative burden was really rough on the IRS and state tax agencies.”

There are a few reasons that paperwork for these programs is so onerous for the IRS to handle. For instance, the Paycheck Protection Program loans are tax-exempt and do not count toward gross income. And while looser deadlines may aid small businesses, it complicates things for the IRS.

The ERC was established in 2020 and has experienced changing eligibility rules, so many small business owners didn’t realize they qualified for these benefits. Though owners may have missed the Oct. 1, 2021, deadline for the ERC, the IRS makes it possible to apply retroactively by filing an amended payroll tax return. These rolling applications and tax-exempt programs are the main reasons for IRS backlogs and systemic overwhelm.