ERC Update: IRS Accelerates Payments and Intensifies Audits

In an Aug. 8 press release, the IRS provided crucial updates on the processing of Employee Retention Credit (ERC) claims, highlighting both progress and challenges. Most newsworthy was that the IRS issued 28,000 disallowance letters to businesses with claims deemed high-risk for improper payments, while 50,000 low-risk claims are set to be processed and paid starting in September. The IRS also outlined its intensified efforts to curb fraudulent claims, including criminal investigations and the successful withdrawal of millions in improper claims.

While these actions demonstrate the IRS’s commitment to ensuring the integrity of the ERC program, many businesses are still left waiting for their refunds, with no clear timeline for when they might receive it.

Key developments included in the press release are as follows.

ERC Disallowance Letters

• The IRS has sent 28,000 letters disallowing credits that it believes have a high likelihood of being improper. The IRS does not dispute that some of these claims could be valid but maintains that this is a relatively low percentage (less than 10%).
• It is important to note that if a business receives a denial letter, it does not necessarily mean it is ineligible. While it is hard to grasp the prevalence at this point, tax professionals are observing cases where the IRS has made basic errors or improper assumptions of facts to improperly deny credits.
• If a business received a denial letter for a credit it believes it is entitled to, it is important to work with a reputable tax professional to understand appeal rights. There is generally a 30-day limit to file an appeal, so immediate action is necessary.
  • The IRS has acknowledged that in some denial letters the taxpayer’s appeal rights were inadvertently omitted. This omission, while confusing to taxpayers, does not limit a business’ rights or ability to appeal.

Additional ERC Claims to Be Paid

• The IRS plans to move forward with processing 50,000 claims that represent a low risk of being improper. It is expected that these payments will begin in September.
• The IRS is shifting the moratorium date to Jan. 31, 2024. This means it intends to begin processing claims filed between Sept. 15, 2023, and Jan. 31, 2024.

ERC Investigation Efforts

• The press release also touts the IRS’ efforts to curb improper payouts, noting some of its accomplishments:
  • The ERC Claim Withdrawal Program resulted in more than 7,300 entities withdrawing approximately $675 million.
  • The ERC Voluntary Disclosure Program resulted in taxpayers disclosing more than $1 billion of improper credit claims.
  • IRS criminal investigations have identified $7 billion of potentially fraudulent claims.

Still Waiting on a Refund?

The additional processing of payments is certainly welcomed by taxpayers and tax professionals alike. However, taxpayers who do not receive a refund in September as a part of the next payout will be disappointed as there is still no method for checking on a specific claim. These taxpayers will likely have to continue to wait with limited options.

For additional information on the ERC program, reach out to your KSM advisor or complete this form.