On June 20, 2024, following a detailed internal review, the Internal Revenue Service (IRS) announced its plans to deny tens of thousands of “improper high-risk” Employee Retention Credit (ERC) claims as they start to process lower-risk claims to help eligible taxpayers.
IRS Commissioner Danny Werfel stated, “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. 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.”
So far, the IRS has identified between 10% and 20% of claims that it believes fall into the “highest-risk group” and show signs of being invalid. These claims will be denied in the coming weeks. In addition, the IRS stated that they estimate “between 60% and 70% of the claims show an unacceptable level of risk.” The IRS will be conducting further analysis on this group of claims.
In response to concerns expressed by taxpayers and practitioners about slow processing of legitimate claims, the IRS noted that it is taking more action to address these claims and will “begin judiciously processing” “low risk” claims which it believes represent about 10-20% of claims. Generally, the oldest claims will be worked first with payments on these claims to begin to be issued later this summer. The agency advised that processing speeds will not return to the levels they occurred at last summer and that taxpayers with pending claims do not need to take action at this point, but should await a notification from the IRS. Many taxpayers, frustrated with the long delays, have initiated requests with the IRS Taxpayer Advocate’s Office or filed lawsuits to prompt the IRS to process their claims.
Special IRS Withdrawal Program Is Open for Those with Unprocessed ERC Claims
Commissioner Werfel noted that the IRS remains concerned that many taxpayers have been misled by promoters. With the large number of questionable claims under review, the IRS urges taxpayers to consider the IRS ERC Withdrawal Program which allows taxpayers to request that the IRS not process their ERC claim. Taxpayers who have received an ERC refund check but have not yet cashed or deposited it are also eligible to withdraw the claim and return the check. Claims that are withdrawn will not be subject to penalties.
ERC Investigations and Audits Continue
As of May 31, 2024, the IRS Criminal Investigation Division has initiated 450 criminal cases with 36 investigations resulting in federal charges. The IRS currently has thousands of ERC claims under audit and continues to investigate ERC promoters as well.
For more information, visit our ERC resource page at: https://www.sideman.com/employee-retention-tax-credit/
