The Internal Revenue Service (IRS) has announced a breakthrough in the processing of Employee Retention Credits (ERC) claims that have been on hold since September. The ERC is a tax credit for eligible businesses and organizations affected by the COVID-19 pandemic. Due to the high risk of fraud, the IRS stopped processing claims to review them in detail. However, ‘low-risk’ claims will now be processed, while others will be rejected or undergo further review.
The IRS has identified three categories of ERC claims – high risk, unacceptable risk, and low risk. The high-risk group, comprising 10-20% of claims, will be denied as they show clear signs of being erroneous. The IRS plans to deny thousands of claims in this category, which do not align with the guidelines set by Congress. The next group, representing 60-70% of claims, shows an unacceptable level of risk and will also undergo further adjudication due to various risk factors.
The smallest group of claims deemed ‘low risk’ will be processed without any additional steps required from taxpayers. These claims do not display any warning signs or risks and are expected to be processed this summer. While this is good news for those taxpayers, the delay in processing has caused frustration among taxpayers and practitioners. The complexity of the ERC is cited as a major challenge, leading to risky claims and further delays in processing.
IRS Commissioner Danny Werfel acknowledges the complexity of the ERC and asks for patience from taxpayers as they continue to untangle the process. The IRS has conducted a quarterly review of claims amounting to $86 billion, aiming to protect taxpayers from improper payouts and ensure eligible individuals receive their due credit. Aggressive marketing campaigns and the slow response of the service on social media platforms may have contributed to the overwhelming number of claims.
Taxpayers with legitimate claims are advised to wait for the processing to be completed, without contacting the IRS for updates. However, those who have knowingly misled the IRS are urged to rectify their claims using the withdrawal program. The IRS has processed thousands of claims worth billions of dollars, with the Criminal Investigation division initiating criminal cases against potentially fraudulent claims worth nearly $7 billion. The IRS continues to emphasize transparency and accountability in processing ERC claims to ensure fair distribution of funds.
