06/21/2024
‼️‼️ERC UPDATES‼️‼️
IRS enters next stage of Employee Retention Credit work; review indicates vast majority show risk of being improper
Highest-risk claims being denied, additional processing to begin on low-risk claims; heightened scrutiny and review continues as compliance work tops $2 billion; IRS will consult with Congress on potential legislative action before making decision on future of moratorium
Following a detailed review to protect taxpayers and small businesses, the Internal Revenue Service today announced plans to deny tens of thousands of improper high-risk Employee Retention Credit claims while starting a new round of processing lower-risk claims to help eligible taxpayers.
“The completion of this review provided the IRS with new insight into risky Employee Retention Credit activity and confirmed widespread concerns about a large number of improper claims,” said IRS Commissioner Danny Werfel. “We 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.”
“This is one of the most complex credits the IRS has administered, and we continue to ask taxpayers for patience as we unravel this complex process,” Werfel added. “Ultimately, this period will help us protect taxpayers against improper payouts that flooded the system and get checks to those truly eligible.”
The review involved months of digitizing information and analyzing data since last September to assess a group of more than 1 million Employee Retention Credit (ERC) claims representing more than $86 billion filed amid aggressive marketing last year.
During this process, the IRS identified between 10% and 20% of claims fall into what the agency has determined to be the highest-risk group, which show clear signs of being erroneous claims for the pandemic-era credit. Tens of thousands of these will be denied in the weeks ahead. This high-risk group includes filings with warning signals that clearly fall outside the guidelines established by Congress.
In addition to this highest risk group, the IRS analysis also estimates between 60% and 70% of the claims show an unacceptable level of risk. For this category of claims with risk indicators, the IRS will be conducting additional analysis to gather more information with a goal of improving the agency’s compliance review, speeding resolution of valid claims while protecting against improper payments.
At the same time, the IRS continues to be concerned about small businesses waiting on legitimate claims, and the agency is taking more action to help. Between 10% and 20% of the ERC claims show a low risk. For those with no eligibility warning signs that were received prior to the last fall’s moratorium, the IRS will begin judiciously processing more of these claims.
The IRS anticipates some of the first payments in this group will go out later this summer. But the IRS emphasized these will go out at a dramatically slower pace than payments that went out during the pandemic period given the need for increased scrutiny.
As the additional IRS processing work begins at a measured pace, other claims will begin being paid later this summer following a final review. This additional review is needed because the submissions may have calculation errors made during the complex filings. For those claims with calculation errors, the amount claimed will be adjusted before payment.
The IRS also noted that generally the oldest claims will be worked first, and no claims submitted during the moratorium period will be processed at this time.
