• The Senate Finance Committee holds a hearing on issues facing nonprofits these days, as that and other sectors continue to lobby for a short-term restoration of the Employee Retention Tax Credit.
  • Big day for hearings: IRS Commissioner Chuck Rettig could be in the hot seat today as he testifies before a House panel on the current filing season.
  • One related issue that might have flown under the radar: The IRS is apparently asking Americans living abroad who received expanded Child Tax Credit allowances to pay them back.

Can we get a little help

It’s no exaggeration to say that the nonprofit sector is revved up for this morning’s hearing. Hearings don’t frequently move the needle for lawmakers — far from it. But for charities and nonprofits, today is an opportunity for Senate tax writers to learn just how thin they’ve been stretched because of the pandemic. “Nonprofits are still up to their eyeballs in this. The need resulting from Covid has completely outstripped all of our resources,” said Steve Taylor of the United Way Worldwide, who said today’s hearing has gotten far more interest than usual from major charitable advocates. “Any charity doing anything related to Covid is struggling to meet the need,” Taylor added.

One particular focus:

Nonprofits have been teaming up with business groups, including advocates for restaurants, to prod Congress to restore the Employee Retention Tax Credit for 2021’s fourth quarter. Last year’s bipartisan infrastructure measure ended the ERTC three months early, to help offset the costs. But those groups say the timing couldn’t have been worse — lawmakers made that decision before the Omicron variant of the coronavirus hit, which left businesses and nonprofits scrambling near the end of the year. There is some bipartisan support for that idea — Reps. Carol Miller(R-W.Va.) and Stephanie Murphy(D-Fla.), both tax writers, have teamed up on a bill in the House, as have Sens.Maggie Hassan(D-N.H.) and Tim Scott (R-S.C.). But there also are a list of obstacles: The IRS has already had trouble getting businesses their employee retention credit proceeds, and reviving the incentive for the fourth quarter of 2021 would mean more amended returns that could further pile up the agency’s paper backlog. Then there’s the question of vehicles — there doesn’t seem to be anything immediate on the horizon where an ERTC extension could hitch a ride, raising the possibility that this becomes part of the debate over a lame-duck tax package.

Advocates seem to understand that, too:

“There is clearly strong support in the Congress to revisit the ERC when Congress considers another tax bill – which unfortunately may not be until later this year,” said Dean Zerbe of the alliantgroup, a former senior Senate Finance staffer who’s been lobbying on this issue. Charitable advocates need “to leave no doubt about the value and importance” of the credit, Zerbe added. Still, it’s hard to game out how it will play out for the ERTC. Senate Finance Chair Ron Wyden(D-Ore.) publicly has backed the idea of restoring the fourth quarter, but there hasn’t necessarily been an outpouring of support in that chamber.”

The top Republican on Senate Finance, Mike Crapo of Idaho, doesn’t specifically mention the ERTC in his opening statement today, though he does plug the chamber’s “track record of bipartisan cooperation” on incentivizing charitable giving.

One more thought: Taylor of the United Way Worldwide noted that he’s also heard some concerns about the cost of another three months of the ERTC, which would add up to around $8 billion. He added that there have been discussions about “creative solutions” to that issue, though he acknowledged that could easily involve seeking offsets from other areas — which can cause its own complications.

Welcome, Welcome

Rettig comes to the House Ways and Means oversight panel as the filing season is about two-thirds of the way complete, and will almost certainly face a bipartisan crew of lawmakers with plenty of questions. Some of those questions will undoubtedly delve into some of the big filing season issues that have already sparked a lot of headlines — like the paper backlog that numbers in the millions of tax returns, the agency’s efforts to funnel new and existing staff to help reduce it, and the IRS’s attempts to limit notices sent to taxpayers that might not be necessary because of the backlog. But there are other, perhaps more under-the radar issues that outside groups hope will get some attention, too. The American Institute of CPAs, for instance, wants the IRS to be more aggressive in areas like penalty relief. “The AICPA believes the IRS can and should do more to blunt the impact of the backlog on this filing season,” the group said.

Going to need that back

The CTC issue facing Americans living abroad is unlikely to become a major issue, given all the various potential and actual problem spots during this filing season. But it does raise interesting points and questions about the IRS’s ability to do all that it’s been tasked with, including overseeing a variety of pandemic relief measures, while it continues to lose employees. Here’s the situation, according to the group Democrats Abroad: The 2021 expansion of the Child Tax Credit included a requirement that recipients live in the U.S. for at least half the year. But the IRS still sent payments to some families living abroad, though just how many isn’t clear. And now, according to Democrats Abroad, some of those families are reporting that the IRS is now asking them to return the money they’d been sent — something they say would be quite a burden. (Recipients below a certain income threshold don’t have to send back monthly CTC payments they received in error.) Democrats Abroad, in testimony submitted for today’s hearing with Rettig, also stressed that many overseas Americans have not received any of the three installments of stimulus payments, either.