The moratorium on processing new Employee Retention Credit (ERC) claims, which began last September, will continue for the foreseeable future. The IRS announced this information in a June 20 news release, which also provided an update on the status of its ERC processing.
The IRS’s announcement provides little solace to taxpayers with legitimate claims that have waited months for those claims to be processed. The IRS has emphasized that taxpayers with pending claims do not need to take any action at this time and should await further notification from the agency. The agency emphasized those with ERC claims should not call IRS toll-free lines because additional information is generally not available on these claims as processing work continues.
According to the IRS, it analyzed more than one million ERC claims following last fall’s moratorium, which indicated an extremely high rate of improper claims. As a result of this review, the IRS intends to deny tens of thousands of high-risk claims in the coming weeks. These claims, which constitute 10-20% of the total claims analyzed, show clear signs of falling outside the guidelines for the credit established by Congress. Another 60-70% of claims show an unacceptable level of risk, and the IRS intends to gather more information on claims falling in this category.
The remaining 10-20% of claims show a low risk. The IRS, committed to a thorough and fair process, and will begin “judiciously” processing claims received before the moratorium that show no warning signs. It anticipates that the first payments to these taxpayers will go out later this summer. The IRS, however, cautioned that its processing speed will be “dramatically slower” than during the pandemic, given the need for increased scrutiny.
Meanwhile, no claims submitted during the moratorium, which began on September 15, 2023, will be processed at this time. IRS Commissioner Danny Werfel stated that ending the moratorium might trigger a flood of new claims from ERC promoters. The IRS intends to consult with Congress on potential legislative action before deciding on the future of the moratorium, including possibly ending new claims entirely and seeking an extension of the statute of limitations to give the agency more time to pursue improper claims. According to the IRS, ERC claims have continued to be submitted at the rate of more than 17,000 per week since the start of the moratorium, resulting in a current ERC inventory of 1.4 million.
The IRS, understanding the complexity of ERC claims, has continued to urge taxpayers to work with a trusted tax professional when evaluating their eligibility for the ERC. This guidance is to ensure that employers are supported and guided through the process. The agency is also considering reopening its Voluntary Disclosure Program, which ended in March, at a reduced rate for taxpayers with previously processed claims who wish to avoid future compliance action by the IRS.
