Agency accelerates work on complex credit as more payments move into processing
On Thursday August 8, 2024, the IRS updated its guidance on the processing of unpaid ERC claims and provided an update on its efforts to reduce ERC fraud.
Additional payments for 50,000 valid claims moving into processing with payments beginning in September; more in the fall
In the latest step, the IRS announced today that 50,000 low-risk ERC claims will be paid out after processing is complete. The agency anticipates payments will be mailed beginning in September with additional payments going out in subsequent weeks. They anticipate adding another large block of additional low-risk claims for processing and payment in the fall.
The IRS also noted that it is a making a shift in the moratorium period on new claims now that it has additional information. Previously, the agency was not processing claims filed after September 14, 2023. Going forward, it will now start judiciously processing claims filed between September 14, 2023, and January 31, 2024. Like the rest of the ERC inventory, work will focus on the highest and lowest risk claims at the top and bottom end of the spectrum. This means there will be instances where the agency will start taking actions on claims submitted in this time period when the agency has seen a sound basis to pay or deny a refund claim.
Work continues on improper claims as IRS closely monitors feedback; appeals process available for denied claims.
Since imposing a moratorium on processing ERC refund claims last September, the IRS has reviewed more than 1 million ERC claims representing more than $86 million and identified significant discrepancies, which led them to categorize these claims based on risk level. The review found that 10-20% of the claims are clearly ineligible and will be denied. Another 60-70% of claims exhibit risk indicators and will require additional analysis to ensure compliance. Only 10-20% of the claims appear legitimate and will be processed with heightened scrutiny to protect against improper payments.
The IRS plans to deny tens of thousands of high-risk claims. Moreover, thousands of ERC claims are currently under audit, and the IRS is gathering information about suspected abusive tax promoters and preparers improperly promoting the ability to claim the ERC. The IRS will continue civil and criminal enforcement efforts of these unscrupulous promoters and preparers.
Over the summer, the IRS 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 with potentially fraudulent claims worth nearly $7 billion have been initiated. The IRS also reminds businesses that when they receive a denial of an ERC claim they have options available to file an administrative appeal by responding back to the address on the denial letter. IRS.gov also has additional information on administrative appeals from the IRS Independent Office of Appeals.
Tanner’s Take
This is welcome news for clients awaiting refund checks as the IRS has provided a more certain date for payment. Payments for 50,000 low risk ERC claims should be mailed starting in September with another block processed in the fall. Previously, the IRS stated the oldest claims would be given priority. More welcome news for taxpayers who submitted ERC claims after the moratorium. The IRS will commence “judiciously” processing those with focus on the highest and lowest risk claims. While this is welcome news, the current inventory of unpaid ERC claims is over 1 million. Accordingly, we urge continued patience.
Taxpayers have started to receive ERC denial letters, some for scrivener’s error and others where the IRS does not understand the client facts or lacks sufficient information. If you receive a denial letter or notice of audit, please contact us for assistance.
If you have questions about your refund claim, please contact Shawn Marchant or Matt Neuenswander.