Rejecting “Clearly Erroneous” Claims, News on Processing

By Christopher Migliaccio, JD, Managing Director

On Thursday, June 20, 2024, the IRS announced updates on its handling of the remaining open Employee Retention Credit (ERC) claims. After completing the process of digitizing an estimated one million open claims, the IRS has grouped the open claims into three categories and will proceed differently with each group. Read on for more details of the IRS announcement.

IRS Plan of Action

In completing its review, the IRS found that 10 to 20 percent of claims had “clear signs of being erroneous” and were outside the guidelines set by Congress. These will be rejected by the IRS.

Another 60 to 70 percent of claims had what the IRS called an “unacceptable level of risk.” These claims will undergo additional analysis and further review process before being paid.

In positive news, the IRS indicated that it would begin processing 10 to 20 percent of claims that showed low risk and were received before the moratorium began. These checks would begin going out this summer.

The moratorium on the processing of claims received after September 14, 2023 remains.

“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.” Daniel Werfel, IRS Commissioner, added, “Ultimately, this period will help us protect taxpayers against improper payouts that flooded the system and get checks to those truly eligible.”

What to Do for Businesses Still Waiting?

The IRS stressed that there is no action that needs to be taken by businesses at this time. They noted that businesses should not call the IRS toll-free line for updates on the processing of specific claims.

The IRS urged businesses to review their claims with trusted advisors and reminded them of the withdrawal program for unpaid erroneous claims. It was also indicated that the previously open voluntary disclosure program for paid claims may return but with less favorable terms.

Other Notes

As part of this recent announcement, the IRS shared that its compliance work, including the withdrawal program, the voluntary disclosure program, audits and criminal investigations, had saved taxpayers over two billion dollars.

The IRS also indicated it would continue to work with Congress on legislative solutions. The House of Representatives passed the Tax Relief for American Families and Workers Act, which would cut off ERC submissions postmarked after January 31, 2024 and provide extended time to audit claims.

Businesses who have not filed for the ERC may still consider their qualification. While the statute of limitations for claims relating to 2020 expired April 15, 2024, amended payroll tax returns can currently be filed until April 15, 2025 for 2021 quarters. However, based on this IRS pronouncement, any claims filed now should expect a significant delay in processing and are at risk if the Senate passes the Tax Relief for American Families and Workers Act.

Takeaways

The ERC remains a significant issue long after the pandemic it was meant to respond to has ended.

The IRS’ continued work to take on the bad actors in the ERC space will require many businesses with legitimate claims, who have worked with a trusted tax professional and documented their qualification, to continue waiting for the processing of the credit. Those who may have worked with bad actors should use this time to review their ERC qualification thoroughly.

To read the full IRS announcement, click here.

Contact Us

PKF Advisory has helped hundreds of companies across various industries determine their ERC qualification, calculate their credit and help them file amended payroll tax returns.

If you have questions about the employee retention credit, contact your client service team or:

Christopher Migliaccio
Managing Director
ERC Services Leader
cmigliaccio@pkfadvisory.com