While the Employee Retention Credit (ERC) has helped many businesses, other companies, as well as the IRS, continue to experience challenges. Extremely long processing times and failure to obtain any meaningful updates from the IRS continue to be at the top of the list of challenges. Government officials have cited increased time to review and weed out potentially fraudulent claims as an excuse for the longer waits which, unsurprisingly, has not provided much solace to taxpayers.
In September of 2023, the IRS announced a moratorium on the processing of new ERC claims due to rising concerns about a flood of improper ERC claims being examined. (see related post) However, this moratorium has not halted the filing of new ERC claims, leaving the IRS with a less-than-desirable amount of time to process claims filed before the moratorium. Approximately 1.4 million ERC claims are currently held in the IRS with about half of these claims received after the moratorium. It is estimated that the IRS has continued to receive more than 17,000 claims a week since the moratorium.
Although the moratorium was issued nine months ago, taxpayers are still largely playing a waiting game. In a recent news release, the IRS provided insight following a detailed review of 1 million ERC claims, which represent over $86 billion. According to the IRS, the review “confirmed concerns raised by tax professionals and others that there was an extremely high rate of improper ERC claims”.
As a result of the review, the IRS separated the claims into the following risk levels:
- 10-20% of claims reviewed fall into the highest risk group, which show clear signs of erroneous claims
- 60-70% of claims show an unacceptable level of risk
- 10-20% of claims show low risk
The IRS plans to “judiciously” process the 10-20% of low risk claims, starting with the oldest claims submitted before the moratorium. The first round of payments are expected to go out this summer.
Tens of thousands of the high risk claims are expected to be denied in the weeks ahead. IRS Commissioner Danny Werfel stated that the IRS will now use this information to deny billions of dollars in clearly improper claims and begin additional work to issue payments to help taxpayers without any red flags on their claims.
While the IRS has finally provided a general timeline for the processing of certain ERC claims, this is all still largely a “sit-and-wait” game. Many taxpayers are eager to contact the IRS for a status update, but the IRS warns that the process will continue to take time and that taxpayers should avoid calling IRS toll-free lines because “additional information is generally not available on these claims as processing work continues.”
No claims submitted during the moratorium period will be processed yet. The IRS plans to keep the processing moratorium in place on all ERC claims submitted after September 14, 2023, due to concerns that the large number of claims coming in are clogging the system for legitimate taxpayer claims.
Thousands of ERC claims are currently under audit. Through the end of the first quarter of 2024, 450 criminal cases have been initiated by the IRS, with 36 investigations resulting in federal charges and 16 investigations resulting in convictions. There have been seven sentencings, averaging 25 months.
The IRS strongly encourages taxpayers with unprocessed claims to review the IRS ERC Eligibility Checklist as well as to consider the IRS ERC Withdrawal Program to avoid compliance issues. A decision to reopen the ERC Voluntary Disclosure Program is also expected to be made in the coming weeks. The Voluntary Disclosure Program was created to be used by taxpayers who believe they have been scammed by a an ERC solicitor. Additionally, the IRS continues to emphasize the importance of working with a trusted tax professional and avoid third party promoters of ERC taking irresponsible and overly aggressive positions. If you need assistance related to the ERC, please reach out to your GYF tax executive at 412-338-9300.
Related Posts:
IRS Implements Program to Repay Ineligible ERC Claims
IRS Offers More Resources to Combat ERC Scams
IRS Temporarily Halts Processing of New ERC Credit Claims
Claudio Simione assisted with the research and writing of this article. A 2024 graduate of Duquesne University, Claudio is spending the summer as an intern in our Tax Services Group before returning to Duquesne University for law school in the fall.
