IRS Resumes ERC Claims Processing with Some Warnings

On August 8, 2024, the Internal Revenue Service (IRS) announced that it will restart processing certain Employee Retention Credit (ERC) claims filed between September 14, 2023, and January 31, 2024. The agency states that it has identified 50,000 valid low-risk ERC claims and will process payments for these claims beginning in September. The IRS anticipates processing additional payments in the fall.

The ERC is a refundable payroll tax credit designed to help small to medium-sized business owners pay their employees during the COVID-19 economic downturn. The IRS placed a moratorium on processing claims filed after September 14, 2023, in response to a “flood of improper” claims, concerns from tax professionals, and the “aggressive marketing to ineligible applicants.” The restart addresses claims subject to the moratorium.

High-Risk Claims Subject to Heightened Scrutiny

The IRS also reported that it has initiated thousands of audits and 460 criminal cases for claims with a high risk of being incorrect. The IRS has sent out 28,000 disallowance letters for high-risk claims, worth an estimated $5 billion. Claimants that receive an ERC disallowance letter must appeal the IRS’s decision within 30 days of the date on the disallowance letter. In most cases, claimants must follow a formal appeal and protest.

The IRS identified several red flags in their compliance reviews:

• Essential businesses during the pandemic that could fully operate and did not have a decline in gross receipts.
• Businesses that were unable to support how a government order fully or partially suspended business operations.
• Businesses that reported family members’ wages as qualified wages.
• Businesses that used wages already used for Paycheck Protection Program loan forgiveness.
• Large employers that claimed wages for employees who provided services.

Additional ERC Safeguards

The IRS has added safeguards to prevent future abuse and to protect businesses and the tax system. These included a withdrawal process and a voluntary disclosure program.

• ERC Claim Withdrawal Process: The IRS has an ERC claim withdrawal option to help taxpayers who have yet to receive the credit but are concerned about the accuracy of their claims. The IRS treats withdrawn claims as if they were never filed, but withdrawing a fraudulent claim will not exempt the claimant from potential criminal investigation and prosecution.
• Voluntary Disclosure Program: The IRS also has a voluntary disclosure program for ERC claimants that received payments for dubious ERC claims.

For more information on the processing of ERC claims, contact us. We’re here to help.

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