Update on Employee Retention Credit Claims

The IRS has announced that most of the remaining Employee Retention Credit (ERC) claims are likely fraudulent or erroneous, leading to the impending denial of tens of thousands of these claims.

The ERC was originally created to assist businesses to continue to pay employees during the COVID-19 pandemic when operations were disrupted due to government orders or significant declines in gross receipts. The credit was available to eligible businesses from March 31, 2020, to September 30, 2021, and extended to December 31, 2021, for recovery startup businesses.

In terms of claim evaluation, the agency said it had taken the time since its September 14, 2023, the IRS has digitized and analyzed over one million ERC claims, which collectively represent over $86 billion, and found that between 60% and 70% showed an unacceptable level of risk.

But there is good news for small-business owners who filed legitimate claims caught in limbo over the last few years. The IRS will start processing claims it considers “low risk.” The agency estimates between 10% and 20% of ERC claims fall into that category. 

The IRS has committed to addressing the oldest claims first, with no new claims submitted during the moratorium being processed currently. Since the moratorium’s implementation, over 17,000 claims have been received weekly.

The IRS is also considering reopening its voluntary disclosure program, which ended in March. This program allowed businesses that incorrectly received ERC funds to repay them with a 20% discount. However, if reopened, the terms are expected to be less favorable. Taxpayers who have submitted improper claims that haven’t been processed can still withdraw their claims.

IRS Commissioner Danny Werfel emphasized the importance of consulting with your trusted tax professional and thoroughly reviewing eligibility requirements, cautioning against those who exploit the ERC program for personal gain.

Source: www.irs.gov