The IRS has announced the resumption of processing certain Employee Retention Tax Credit (ERC) claims after a year-long pause. This move comes amidst ongoing audits and investigations into fraudulent claims, affecting over 1.4 million businesses waiting for their refunds.
Key Takeaways
- The IRS is resuming processing of 50,000 low-risk ERC claims.
- Over 1.4 million businesses are awaiting ERC refunds.
- The IRS has identified and rejected $6 billion in incorrect claims.
- A Voluntary Disclosure Program is available for businesses to correct erroneous claims.
Resumption of ERC Processing
After nearly a year of halted processing, the IRS has announced plans to resume handling ERC claims. This decision follows the identification of several hundred million dollars in fraudulent claims and the collapse of a bipartisan tax deal that could have ended the ERC program entirely.
The IRS will focus on processing 50,000 ERC claims deemed low-risk for improper filing. These claims will be processed from September 14, 2023, through January 31, 2024. Businesses falling into this category can expect their claims to be processed starting in September, with additional payouts likely later in the fall.
Ongoing Audits and Investigations
Despite resuming the processing of low-risk claims, the IRS remains vigilant against fraudulent filings. The agency has sent 58,000 rejection letters, amounting to $6 billion in incorrect claims, and has initiated 460 criminal cases related to improper ERC claims. So far, 37 investigations have resulted in federal charges, 17 in convictions, and 9 sentences averaging 20 months.
Thousands of other claims are currently under audit. Businesses are encouraged to proactively withdraw their ERC claims if they believe they were filed erroneously. To date, more than 7,300 entities have withdrawn claims, totaling $677 million in claimed credits.
Voluntary Disclosure Program
In response to the high number of incorrect filings, the IRS has temporarily reopened the Voluntary Disclosure Program. This program allows businesses to correct improperly filed claims and repay the errant amount at a 15% discount, avoiding future penalties, audits, or fees. However, this program is only available until November 22, 2024.
Steps for Rejected ERC Claims
For businesses that believe their ERC claims were improperly denied, the IRS provides a couple of steps to appeal:
- Respond to the address on the denial letter stating your appeal.
- File an administrative appeal using the information on the IRS website.
Recent rejection letters may have mistakenly omitted the paragraph about the appeals process. A follow-up letter from the IRS with this information may be forthcoming.
Timeline for ERC Claim Approval
The IRS will prioritize processing the highest and lowest risk claims first. Businesses with claims assessed as middle-of-the-road in terms of risk may experience longer wait times. In the meantime, partial ERC payments for valid tax periods may be issued throughout the year, as eligibility can vary from one tax period to the next.
With over 17,000 new claims coming in weekly and 50,000 claims being processed, the IRS faces a resource-intensive task. The total payout and timeline for new claims remain uncertain, and many businesses may not receive their ERC refunds for months or even years.
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