It’s not just the tax code that’s on the ballot this fall in the presidential election, but how that code will be enforced for the next four years. The Biden-era IRS has taken an approach that’s fairly hostile to successful business owners, and it’s probably a good bet the agency will hold fast to its current course if Vice President Kamala Harris wins in November.  

Nowhere is the current anti-business owner bias of the IRS on better display that in the agency’s recent announcement that it will aggressively pursue Employee Retention Credit (ERC) clawbacks, where the IRS will serve as both judge and jury in seeking the return of more than $1 billion from 30,000 American small businesses that received funds under the Covid-era program. 

The ERC was first passed with great haste by Congress in the early days of the pandemic in 2020, and was initially expected to cost $55 billion. While federal budget evaluators pushed that number up to $78 billion, in reality the cost was a runaway train expected to exceed $550 billion — a monstrous 700 percent cost overrun.

That’s not entirely the IRS’s fault, though. It’s a result of Congress’ failure to do its job as well. The IRS got a responsibility it didn’t ask for, which is administering the ERC program. It’s a legitimate argument to say the agency wasn’t equipped to handle it, and that perhaps it should be forgiven for running the program badly. 

That doesn’t change the fact that the IRS did a truly awful job of running the ERC program. 

First, the IRS processed and paid many fraudulent claims. And they did so apparently without checking to make sure the applicants were actually eligible to receive the ERC, by virtue of having paid federal employment taxes. That information was stored and available in the IRS’s systems, so there’s no excuse for that failure.

Then in 2020, the agency issued a notice that required ERC applicants to file an amended tax return for the expected refunds before the IRS would process and pay those funds out. The effect was that struggling businesses, at the height of Covid, were required to pay out more cash for taxes before they could receive the cash Congress had legislated for them. 

By doing so, the IRS was creating a nightmare scenario in which businesses could file for the ERC credit, file the amended return, and pay additional taxes on the anticipated ERC credit, and then have the credit denied by the IRS. 

And that denial would come after the time period to amend their return to get back the tax they were forced to pay on the credit they now weren’t getting. Which is exactly what came to pass for some businesses: About a year after issuing that notice, the IRS suspended the processing of ERC claims. 

That’s not unintentional ineptitude. That’s anti-business targeting.

With their arbitrary rulings and suspension of claims processing, they managed to prevent many eligible businesses from receiving credits Congress authorized for them and to pay income tax on monies that will never be received.

Did the IRS have the authority to do that? No. But that didn’t stop them. That’s part of the pattern, and part of the problem. 

The IRS under the Biden administration has far too often become an unaccountable, we’ll-do-as-we-damn-well-please bully, but a bully with the ability to pry into taxpayer and business records and demand actions and payments that can be a crushing burden. 

In poorly administering the ERC program it didn’t ask for, the IRS nonetheless ended up with egg on its face. And like a schoolyard bully who gets embarrassed, the IRS now seems to want to slug somebody. 

So here come the ERC clawbacks, which the IRS crows about in numerous press releases. The service proudly says their clawbacks will reclaim $1 billion in improper ERC claims. But that’s less than two-tenths of one percent of the estimated ERC cost. 

And of course the overwhelming majority of that will no doubt be wrung out of the hide of smaller, less sophisticated filers who are more mistake-prone and don’t have big legal and accounting guns standing beside them. The humiliated bully is punching even farther down. 

In another era, the IRS’s mission statement claimed, “The purpose of the Internal Revenue Service is to collect the proper amount of tax revenue at the least cost to the public …” That was an objective, fact-based statement that spoke to efficiency and compliance. 

Today, the IRS’s self-declared mission statement is shot through with ideas of “fairness” and of a shadowy “minority” of taxpayers who are “unwilling to comply” in paying “their fair share.” 

But “fairness” and “fair share” aren’t statutory terms — they’re subjective political terms. And the IRS has embraced them at full volume.

It’s possible the U.S. Supreme Court’s Chevron decision will challenge some of the IRS’s arrogation of power. But don’t be surprised when the agency claims its unique expertise in tax law will make it immune to Chevron. Dissuading the IRS from that stance will take a business with deep enough pockets to sue it and take it all the way to the Supreme Court.

If your business is unlucky enough to get a clawback notice, talk to your advisors and tax preparers. Learn what your appeal rights are and press your team hard about what you can do. In the end, the decision to pursue your case is a high-stakes cost/benefit call. 

Vice President Harris has made it clear she supports the fundamental tax policies of President Biden, and that she’ll push for greater “fairness” and “equity.” If you like what’s been coming out of the IRS during the past three and a half years, it’s clear there’s plenty more to come if she captures the White House.