It’s no secret the Employee Retention Credit (ERC) has been a pain point for the IRS due to the tremendous amount of improper claims received, causing the organization to put a moratorium on processing ERC claims in 2023. However, the IRS recently announced it will resume processing ERC claims filed between Sept. 14, 2023, and Jan. 21, 2024, as well as announced the reopening of the related Voluntary Disclosure Program (VDP), which will run through Nov. 22, 2024.
Processing ERC Claims
According to the IRS, it is primarily focusing on moving 50,000 of its low-risk claims through processing, with the anticipation of beginning payments in September. The IRS anticipates adding another large block of additional low-risk claims for processing and payment in the fall.
In addition to processing ERC claims, the IRS has also sent out 28,000 disallowance letters to businesses whose claims showed a high risk of being incorrect. The IRS estimates that these disallowances will prevent up to $5 billion in improper payments. Thousands of audits are underway, and 460 criminal cases have been initiated.
Given the complexity of the ERC and to reduce the risk of improper payments, the IRS emphasized it is moving methodically and deliberately on both the disallowances as well as additional payments to balance the needs of businesses with legitimate claims against the promoter-fueled wave of improper claims that came into the agency.
ERC Voluntary Disclosure Program
Open through Nov. 22, 2024, the VDP allows businesses a chance to correct improper payments at a 15% discount and avoid future audits, penalties and interest. The IRS urges businesses with claims that show warning sign indicators to review eligibility requirements and work with a trusted tax professional to see if the disclosure program is a good option for them.
During the first disclosure program that ended in March, there were more than 2,600 applications from ERC recipients that disclosed $1.09 billion worth of credits. To underscore the importance of participating in the VDP, the IRS also announced it plans to mail up to 30,000 new letters to reverse or recapture potentially more than $1 billion in improper ERC claims. Thousands more mailings on additional questionable payments will be made in the fall.
ERC History
The ERC program began as an effort to help businesses during the pandemic, but as time went on, the program increasingly became the target of aggressive marketing – and potentially predatory in some cases – well after the pandemic ended. Some promoter groups called the credit by another name, such as a grant, business stimulus payment, government relief or other names besides ERC or the Employee Retention Tax Credit (ERTC).
To counter the flood of claims, the IRS announced last fall a moratorium on processing claims submitted after Sept. 14, 2023, to give the agency time to digitize information on the large study group of ERC claims, which are made on amended paper tax returns. The subsequent analysis of the results during this period helped the IRS evaluate next steps, providing the agency with valuable information to improve the accuracy of ERC claims processing going forward.
Here to Help
Given the complexity of the ERC, we strongly encourage you to work with reputable business tax pros, such as those at our affiliate Doeren Mayhew, to ensure your ERC claim is accurate. To learn more about federal and state laws, regulations and information to keep your company’s payroll operations in compliance, sign up for our newsletter.
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