Employee retention credit advisory firm Innovation Refunds LLC has spent over half a million dollars so far this year on lobbying in relation to the ERC and other incentives for businesses.
Innovation Refunds’ business model is designed to help small and medium-size companies tap into incentives from the government, and now the firm appears to be paying lobbyists so lawmakers will create more incentives.
The firm spent $180,000 in lobbying in the third quarter of fiscal 2023, according to an October 18 disclosure. That comes after spending $180,000 in each of the prior two quarters, for a total of $540,000 spent on lobbying this year.
The Vogel Group registered in March to lobby Congress, the White House, and the Small Business Administration on behalf of its new client Innovation Refunds on issues related to small business and tax, according to a disclosure. Federal Election Commission data show that leaders at Innovation Refunds and a lobbyist for the firm have made $5,370 in campaign contributions this year.
Innovation Refunds is a leading ERC adviser, having facilitated claims for over 26,000 businesses since being founded in 2020, the firm’s CEO, Howard Makler, told Tax Notes September 8.
Makler said in an October 25 email that “in the grand scheme of government relations spending on tax-related issues, half a million dollars is inconsequential.”
However, Anna Massoglia of OpenSecrets said her organization’s data show that “of over 600 clients that just started spending on federal lobbying in the first quarter of 2023 or later, Innovation Refunds ranks within the top three for spending over the first three quarters of this year.”
The firm’s lobbying efforts aren’t self-serving, according to Makler, because expanding the incentives will support other businesses. “If anything, we hope to one day compete with these larger companies to effectively advocate for small business interests in Washington,” he said.
Makler said Innovation Refunds’ legislative focus is on “opportunities to bolster federal incentives for small businesses across the country that are impacted by the increasingly volatile domestic market.”
“For too long, these businesses have been left out of the conversation in Washington, D.C. — we’re working to bring a voice to the mom-and-pop shops that struggle with the realities of economic factors such as inflation on a daily basis,” Makler added.
Too Good to Be True?
The ERC was created by the Coronavirus Aid, Relief, and Economic Security Act to help struggling businesses pay their employees during the COVID-19 pandemic by establishing a refundable tax credit against employer taxes.
But the program has been a target for fraud. The IRS has repeatedly warned about scams related to the credit, urging taxpayers to watch out for aggressive marketing, companies charging contingency fees based on the size of their refund, and promoters who suggest businesses qualify because of supply chain disruptions, even if they don’t because of a governmental order. There is also concern that many of the claims are inaccurate.
The ERC program has come with a higher price tag than expected. Initially, the Congressional Budget Office predicted it would cost $55 billion. The estimate was later revised to $85 billion. As of September 2023, a total of approximately $230 billion in ERC claims had been paid by the IRS, the agency said.
The IRS has temporarily halted processing of new claims amid a surge of questionable ones coming in and is now allowing taxpayers concerned about the accuracy of their ERC claims to withdraw them.
Some tax advisers Tax Notes has spoken with have questioned claims facilitated by Innovation Refunds, which uses independent attorneys to submit ERC claims on behalf of its clients. Makler said the company “is crazy about doing things the right way” during a September 8 interview.
Innovation Refunds laid off 155 of its employees after the IRS ERC moratorium was put in place. In a blog post on its website, the firm said it had also halted its paid lead-generation advertising and cut back its new business development activity.
An Evergreen Program
Innovation Refunds got its start by supporting the distribution of federal research credits and then pivoted to the ERC, according to Makler, who says the firm has never been solely focused on the ERC.
Makler said he had shared with members of Congress what he envisions as a future evergreen program, one that would provide small business owners a mechanism to receive a payroll tax refund in the event of a natural or man-made disaster or other disruptive event. “The idea of small business having a mechanism to get a payroll tax refund when certain circumstances occur, I think, is smart,” he added.
However, Makler acknowledged that could be hard to accomplish with a divided Congress, saying he wants “to focus on exemplifying this proposal through existing legislation.”
Bills the company has lobbied on include the Small Business Innovation Voucher Act of 2021; the Small Business Disaster Damage Fairness Act of 2023 (S. 943); the Veterans Entrepreneurship Act of 2023 (H.R. 903); the Natural Disaster Recovery Program Act of 2023 (H.R. 1605); and the FAST Fix Act of 2023 (S. 1003).
“While we remain supportive of an evergreen program that can encompass the issues faced by all of these sectors, we would rather tailor our approach to the problems faced by each business to ensure that they obtain the support they desperately need,” Makler said.
Innovation Refunds has also disclosed lobbying activity related to the American Innovation and Jobs Act (S. 866), sponsored by Senate Finance Committee members Todd Young, R-Ind., and Maggie Hassan, D-N.H. Reintroduced in April, the bill would revive a Tax Cuts and Jobs Act provision that expired in 2021 by allowing businesses to again deduct expenses related to research and development and expand eligibility for the credit. In an April release, Makler urged Congress to pass the legislation “before it is too late.”
Disclosures show that Innovation Refunds spent money on lobbying for the Employee Retention Tax Credit Reinstatement Act in the first and second quarters of 2023. Introduced by Hassan and Finance Committee member Tim Scott, R-S.C., and House Ways and Means member Carol D. Miller, R-W.Va., the bill would restore the ERC for the fourth quarter of 2021. The Infrastructure Investment and Jobs Act had eliminated the ERC for that quarter, bringing it to an early end. A coalition of trade groups and nonprofit organizations pushed for Congress to pass that bill.
While there was bipartisan support for the ERC program in Congress, some see problems with it. Greg LeRoy of the economic development watchdog Good Jobs First took issue with businesses' ability to retroactively claim the credit.
“If companies are getting paid to do something they did three years ago, that’s exactly the opposite of the definition of an incentive,” LeRoy said. “Now you’ve got somebody out there teaching companies how to claim it retroactively and taking 25 percent of that. That’s not economic development.”