The IRS announced it will reject billions of dollars in claims for a pandemic-era tax break while focusing on processing lower-risk filings. Enacted to assist small businesses during the Covid-19 pandemic, the employee retention credit (ERC) is valued at thousands of dollars per eligible employee. The agency halted new filings in September due to a surge of questionable claims and plans to extend this moratorium.
High-Risk Filings Under Scrutiny
After examining over 1 million claims valued at approximately $86 billion, the IRS identified that 10% to 20% are high-risk, with “tens of thousands” slated for rejection in coming weeks. Additionally, 60% to 70% of claims will undergo further scrutiny due to an “unacceptable level of risk.” IRS Commissioner Danny Werfel stated that this information would aid in denying clearly improper claims while issuing payments to low-risk taxpayers.
Compliance Efforts and Rejected Claims
During the ERC review period, the IRS processed 28,000 claims submitted before September 2023, totaling $2.2 billion, and disallowed over 14,000 claims worth $1 billion. Compliance efforts for erroneous ERC claims have surpassed $2 billion since last fall. Werfel emphasized the complexity of administering the ERC and requested continued patience from taxpayers as they navigate the process. The primary goal remains to safeguard against improper payouts and ensure rightful claims are honored.
Unprocessed Claims and Withdrawal Program
With more than 1.4 million unprocessed ERC claims, many flagged as questionable, the IRS advises taxpayers with pending claims to consider their withdrawal program. Those who haven’t received a payment can withdraw their claim, and if a check has been sent but not yet deposited, it can be returned through this program. Eligible taxpayers can have their original ERC claim undone without incurring penalties or interest.
