July 1, 2024
By Pam Harrison, CPA, Manager, Outsourced Accounting and Advisory Services
As part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted in 2020, the Employee Retention Credit (ERC) was established to assist businesses impacted by the COVID-19 pandemic. Unfortunately, the program later became a target for aggressive marketing efforts by ERC promoters well after the pandemic had ended. Using misleading information about the eligibility requirements, ERC promotors solicited businesses claiming their owners were eligible for tax credits.
IRS Addresses Erroneous ERC Claims
In response to these scams, the IRS implemented two initiatives in 2023 to tackle the erroneous ERC claims filed based on this aggressive marketing.
Voluntary Disclosure Program
The ERC Voluntary Disclosure Program (VDP) was implemented to allow businesses that received erroneous ERC refunds to repay 80% of the refund without penalty or examination of ERC on employment tax returns. Although the program ended on March 22, 2024, many taxpayers took advantage of the VDP. To date, the IRS has processed approximately $1.09 billion from over 2,600 applications under this program. Businesses who still wish to take advantage of the VDP may still have a chance. The IRS could potentially reopen this program, so recipients are encouraged to check the ERC VDP webpage for updates.
Claim Withdrawal Process
The second initiative aimed at erroneous claims was the claim withdrawal process. This program allowed taxpayers who have not received a check for their ERC claim, or those who received a check but have not cashed or deposited it, to request withdrawal of the ERC claim with the IRS. Penalties and interest will not be assessed on claims withdrawn. As of March 15, 2024, more than $251 million in claims have been withdrawn.
ERC Claims Moratorium
On September 14, 2023, the IRS implemented a moratorium on ERC claims. All claims received by the IRS after this date are not currently being processed. For claims received by the IRS before the moratorium, the processing time has increased and ranges from 90 to 180 days. The IRS is currently focusing on two types of ERC claims: 1. Claims that appear to be fraudulent, and 2. Claims that appear to be legitimate and were received prior to the moratorium.
On June 20, 2024, IRS Commissioner Danny Werfel announced the agency has completed a detailed review of the ERC claims to-date, providing new insight about the large number of improper claims. The IRS will begin denying improper claims while also processing lower-risk claims. While the IRS anticipates that payments to this low-risk group will be issued later this summer, payments will be distributed at a much slower pace than they had been previously. In general, the IRS plans to process the oldest claims first but will not be processing any claims received after the moratorium that began September 14, 2023. Those claims that fall in between these two categories (deemed an unacceptable level of risk) will require additional analysis by the IRS to gather more information.
Next Steps
The IRS indicated that taxpayers who filed ERC claims do not need to take any action. No further information on these claims is available, so taxpayers are encouraged to refrain from calling the IRS toll-free lines. At this time, the IRS encourages taxpayers to review the ERC rules and checklists and talk to a trusted tax professional.
The IRS does not have any current plans to remove the moratorium on ERC claims and is utilizing this period to gather additional information from Congress and others on the future of the ERC.
Contact
For additional information on the ERC, review GRF’s resources below or contact a knowledgeable tax professional.
