This bill increases the penalty for aiding and abetting the understatement of tax liability with respect to the employee retention tax credit (ERTC) by a COVID-ERTC promoter, extends the time period for assessing and collecting tax attributable to the understatement, and disallows the ERTC after January 31, 2024.
Under the bill, a COVID-ERTC promoter may be liable for the greater of $200,000 ($10,000 for a natural person), or 75% of the amount derived from the aid, advice, or assistance related to a COVID-ERTC document that understates a taxpayer’s tax liability. Under current law, the penalty for knowingly aiding and abetting in the understatement of tax liability is $1,000 for an individual return or $10,000 for a corporate return.
The bill defines a COVID-ERTC promoter as any individual, trust, estate, partnership, association, company, or corporation that provides aid, assistance, or advice related to a COVID-ERTC document for a contingency fee and with gross receipts derived from providing aid, assistance, or advice related to a COVID-ERTC document exceeding a specified threshold.
A COVID-ERTC document is any return, affidavit, claim, or other document associated with a ERTC claim related to COVID.
The bill extends the time period for assessing and collecting any tax liability associated with an understatement of tax liability related to the ERTC from five to six years.
Finally, under this bill, claims for the ERTC related to COVID must be filed on or before January 31, 2024.
[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[H.R. 9738 Introduced in House (IH)]
<DOC>
118th CONGRESS
2d Session
H. R. 9738
To increase the penalties applicable to persons facilitate fraud with
respect to any COVID-related employee retention credit, and for other
purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
September 20, 2024
Mr. Schweikert introduced the following bill; which was referred to the
Committee on Ways and Means
_______________________________________________________________________
A BILL
To increase the penalties applicable to persons facilitate fraud with
respect to any COVID-related employee retention credit, and for other
purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. ENFORCEMENT PROVISIONS WITH RESPECT TO COVID-RELATED
EMPLOYEE RETENTION CREDITS.
(a) Increase in Assessable Penalty on COVID-ERTC Promoters for
Aiding and Abetting Understatements of Tax Liability.--
(1) In general.--If any COVID-ERTC promoter is subject to
penalty under section 6701(a) of the Internal Revenue Code of
1986 with respect to any COVID-ERTC document, notwithstanding
paragraphs (1) and (2) of section 6701(b) of such Code, the
amount of the penalty imposed under such section 6701(a) shall
be the greater of--
(A) $200,000 ($10,000, in the case of a natural
person), or
(B) 75 percent of the gross income derived (or to
be derived) by such promoter with respect to the aid,
assistance, or advice referred to in section 6701(a)(1)
of such Code with respect to such document.
(2) No inference.--Paragraph (1) shall not be construed to
create any inference with respect to the proper application of
the knowledge requirement of section 6701(a)(3) of the Internal
Revenue Code of 1986.
(b) Failure To Comply With Due Diligence Requirements Treated as
Knowledge for Purposes of Assessable Penalty for Aiding and Abetting
Understatement of Tax Liability.--In the case of any COVID-ERTC
promoter, the knowledge requirement of section 6701(a)(3) of the
Internal Revenue Code of 1986 shall be treated as satisfied with
respect to any COVID-ERTC document with respect to which such promoter
provided aid, assistance, or advice, if such promoter fails to comply
with the due diligence requirements referred to in subsection (c)(1).
(c) Assessable Penalty for Failure To Comply With Due Diligence
Requirements.--
(1) In general.--Any COVID-ERTC promoter which provides
aid, assistance, or advice with respect to any COVID-ERTC
document and which fails to comply with due diligence
requirements imposed by the Secretary with respect to
determining eligibility for, or the amount of, any COVID-
related employee retention tax credit, shall pay a penalty of
$1,000 for each such failure.
(2) Due diligence requirements.--Except as otherwise
provided by the Secretary, the due diligence requirements
referred to in paragraph (1) shall be similar to the due
diligence requirements imposed under section 6695(g).
(3) Restriction to documents used in connection with
returns or claims for refund.--Paragraph (1) shall not apply
with respect to any COVID-ERTC document unless such document
constitutes, or relates to, a return or claim for refund.
(4) Treatment as assessable penalty, etc.--For purposes of
the Internal Revenue Code of 1986, the penalty imposed under
paragraph (1) shall be treated in the same manner as a penalty
imposed under section 6695(g).
(5) Secretary.--For purposes of this subsection, the term
``Secretary'' means the Secretary of the Treasury or the
Secretary's delegate.
(d) Assessable Penalties for Failure To Disclose Information,
Maintain Client Lists, etc.--For purposes of sections 6111, 6112, 6707
and 6708 of the Internal Revenue Code of 1986--
(1) any COVID-related employee retention tax credit
(whether or not the taxpayer claims such COVID-related employee
retention tax credit) shall be treated as a listed transaction
(and as a reportable transaction) with respect to any COVID-
ERTC promoter if such promoter provides any aid, assistance, or
advice with respect to any COVID-ERTC document relating to such
COVID-related employee retention tax credit, and
(2) such COVID-ERTC promoter shall be treated as a material
advisor with respect to such transaction.
(e) COVID-ERTC Promoter.--For purposes of this section--
(1) In general.--The term ``COVID-ERTC promoter'' means,
with respect to any COVID-ERTC document, any person which
provides aid, assistance, or advice with respect to such
document if--
(A) such person charges or receives a fee for such
aid, assistance, or advice which is based on the amount
of the refund or credit with respect to such document
and, with respect to such person's taxable year in
which such person provided such assistance or the
preceding taxable year, the aggregate gross receipts of
such person for aid, assistance, and advice with
respect to all COVID-ERTC documents exceeds 20 percent
of the gross receipts of such person for such taxable
year, or
(B) with respect to such person's taxable year in
which such person provided such assistance or the
preceding taxable year--
(i) the aggregate gross receipts of such
person for aid, assistance, and advice with
respect to all COVID-ERTC documents exceeds 50
percent of the gross receipts of such person
for such taxable year, or
(ii) both--
(I) such aggregate gross receipts
exceeds 20 percent of the gross
receipts of such person for such
taxable year, and
(II) the aggregate gross receipts
of such person for aid, assistance, and
advice with respect to all COVID-ERTC
documents (determined after application
of paragraph (3)) exceeds $500,000.
(2) Exception for certified professional employer
organizations.--The term ``COVID-ERTC promoter'' shall not
include a certified professional employer organization (as
defined in section 7705).
(3) Aggregation rule.--For purposes of paragraph
(1)(B)(ii)(II), all persons treated as a single employer under
subsection (a) or (b) of section 52 of the Internal Revenue
Code of 1986, or subsection (m) or (o) of section 414 of such
Code, shall be treated as 1 person.
(4) Short taxable years.--In the case of any taxable year
of less than 12 months, paragraph (1) shall be applied with
respect to the calendar year in which such taxable year begins
(in addition to applying to such taxable year).
(f) COVID-ERTC Document.--For purposes of this section, the term
``COVID-ERTC document'' means any return, affidavit, claim, or other
document related to any COVID-related employee retention tax credit,
including any document related to eligibility for, or the calculation
or determination of any amount directly related to any COVID-related
employee retention tax credit.
(g) COVID-Related Employee Retention Tax Credit.--For purposes of
this section, the term ``COVID-related employee retention tax credit''
means--
(1) any credit, or advance payment, under section 3134 of
the Internal Revenue Code of 1986, and
(2) any credit, or advance payment, under section 2301 of
the CARES Act.
(h) Limitation on Credit and Refund of COVID-Related Employee
Retention Tax Credits.--Notwithstanding section 6511 of the Internal
Revenue Code of 1986 or any other provision of law, no credit or refund
of any COVID-related employee retention tax credit shall be allowed or
made after January 31, 2024, unless a claim for such credit or refund
is filed by the taxpayer on or before such date.
(i) Amendments To Extend Limitation on Assessment.--
(1) In general.--Section 3134(l) of the Internal Revenue
Code of 1986 is amended to read as follows:
``(l) Extension of Limitation on Assessment.--
``(1) In general.--Notwithstanding section 6501, the
limitation on the time period for the assessment of any amount
attributable to a credit claimed under this section shall not
expire before the date that is 6 years after the latest of--
``(A) the date on which the original return which
includes the calendar quarter with respect to which
such credit is determined is filed,
``(B) the date on which such return is treated as
filed under section 6501(b)(2), or
``(C) the date on which the claim for credit or
refund with respect to such credit is made.
``(2) Deduction for wages taken into account in determining
improperly claimed credit.--
``(A) In general.--Notwithstanding section 6511, in
the case of an assessment attributable to a credit
claimed under this section, the limitation on the time
period for credit or refund of any amount attributable
to a deduction for improperly claimed ERTC wages shall
not expire before the time period for such assessment
expires under paragraph (1).
``(B) Improperly claimed ertc wages.--For purposes
of this paragraph, the term `improperly claimed ERTC
wages' means, with respect to an assessment
attributable to a credit claimed under this section,
the wages with respect to which a deduction would not
have been allowed if the portion of the credit to which
such assessment relates had been properly claimed.''.
(2) Application to cares act credit.--Section 2301 of the
CARES Act is amended by adding at the end the following new
subsection:
``(o) Extension of Limitation on Assessment.--
``(1) In general.--Notwithstanding section 6501 of the
Internal Revenue Code of 1986, the limitation on the time
period for the assessment of any amount attributable to a
credit claimed under this section shall not expire before the
date that is 6 years after the latest of--
``(A) the date on which the original return which
includes the calendar quarter with respect to which
such credit is determined is filed,
``(B) the date on which such return is treated as
filed under section 6501(b)(2) of such Code, or
``(C) the date on which the claim for credit or
refund with respect to such credit is made.
``(2) Deduction for wages taken into account in determining
improperly claimed credit.--
``(A) In general.--Notwithstanding section 6511 of
such Code, in the case of an assessment attributable to
a credit claimed under this section, the limitation on
the time period for credit or refund of any amount
attributable to a deduction for improperly claimed ERTC
wages shall not expire before the time period for such
assessment expires under paragraph (1).
``(B) Improperly claimed ertc wages.--For purposes
of this paragraph, the term `improperly claimed ERTC
wages' means, with respect to an assessment
attributable to a credit claimed under this section,
the wages with respect to which a deduction would not
have been allowed if the portion of the credit to which
such assessment relates had been properly claimed.''.
(j) Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the provisions of this section shall apply to aid,
assistance, and advice provided after March 12, 2020.
(2) Due diligence requirements.--Subsections (b) and (c)
shall apply to aid, assistance, and advice provided after the
date of the enactment of this Act.
(3) Limitation on credit and refund of covid-related
employee retention tax credits.--Subsection (h) shall apply to
credits and refunds allowed or made after January 31, 2024.
(4) Amendments to extend limitation on assessment.--The
amendments made by subsection (i) shall apply to assessments
made after the date of the enactment of this Act.
(k) Transition Rule With Respect to Requirements To Disclose
Information, Maintain Client Lists, etc.--Any return under section 6111
of the Internal Revenue Code of 1986, or list under section 6112 of
such Code, required by reason of subsection (d) of this section to be
filed or maintained, respectively, with respect to any aid, assistance,
or advice provided by a COVID-ERTC promoter with respect to a COVID-
ERTC document before the date of the enactment of this Act, shall not
be required to be so filed or maintained (with respect to such aid,
assistance or advice) before the date which is 90 days after such date.
(l) Provisions Not To Be Construed To Create Negative Inferences.--
(1) No inference with respect to application of knowledge
requirement to pre-enactment conduct of covid-ertc promoters,
etc.--Subsection (b) shall not be construed to create any
inference with respect to the proper application of section
6701(a)(3) of the Internal Revenue Code of 1986 with respect to
any aid, assistance, or advice provided by any COVID-ERTC
promoter on or before the date of the enactment of this Act (or
with respect to any other aid, assistance, or advice to which
such subsection does not apply).
(2) Requirements to disclose information, maintain client
lists, etc.--Subsections (d) and (k) shall not be construed to
create any inference with respect to whether any COVID-related
employee retention tax credit is (without regard to subsection
(d)) a listed transaction (or reportable transaction) with
respect to any COVID-ERTC promoter; and, for purposes of
subsection (j), a return or list shall not be treated as
required (with respect to such aid, assistance, or advice) by
reason of subsection (d) if such return or list would be so
required without regard to subsection (d).
(m) Regulations.--The Secretary (as defined in subsection (c)(5))
shall issue such regulations or other guidance as may be necessary or
appropriate to carry out the purposes of this section (and the
amendments made by this section).
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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