IRS Announces Next Steps for ERC

Taxpayers are struggling to keep current with the Employee Retention Credit (ERC), as the IRS is still halting examinations and ERC claim processing.

Recently, the IRS released IR-2024-169, which includes the following updates:

• The IRS has completed a detailed review of the ERC and claims filed.
• The review gave the IRS new insight into ERC claims and confirmed widespread concerns about many improper claims.
• The IRS will use this information to deny improper claims and issue payments to taxpayers without red flags on their claims.

The IRS has identified 10% to 20% of unprocessed claims that fall into the high-risk category. They will begin denying tens of thousands of these claims in the weeks ahead. Another 60% to 70% have been estimated to have an unacceptable level of risk. For this category, the IRS will begin conducting additional analysis to improve the agency’s review and hopefully speed up the resolution of these claims.

The IRS estimates 10% to 20% of the open ERC claims are low-risk. These will start being processed later this summer.

The IRS also noted that no ERC claims filed during the moratorium will be processed at this time.

What to expect next with the ERC 

Many taxpayers will likely begin receiving disallowance letters on ERC claims, and taxpayers should expect the IRS to intensify examinations of claims.

If you receive a disallowance notice or examination notice, work with a trusted tax professional to assist you in the examination process and verify if the disallowance notice is correct .

The IRS has released the following tools for taxpayers to “self-check” their ERC eligibility and take any concerns to a trusted tax professional.

• ERC Eligibility Checklist includes cautions about common areas of misinformation and links to facts and examples.
• 7 Warning Signs ERC Claims May be Incorrect outlines tactics that unscrupulous promoters have used and why their points are wrong.
• Frequently Asked Questions about the Employee Retention Credit includes eligibility rules, definitions, examples, and more.

How to prepare for increased ERC enforcement

No additional action is needed from taxpayers within the lower 10% to 20% of claims that seem to have passed the IRS scrutiny to be classified as allowable claims. These taxpayers should await further notification from the IRS.

Others should undergo a review by a trusted tax professional for eligibility. The IRS continues to urge taxpayers with pending claims to use this period to review provided resources, talk to tax professionals, and employ the special IRS withdrawal program if there’s an issue.

The ERC Withdrawal Process

The IRS has established a special withdrawal process for those taxpayers with an ERC claim for any tax period that hasn’t been paid or for those taxpayers who received an ERC check but have not cashed or deposited it.

By using this process to withdraw your claim, the IRS will treat the claim as though you never filed it. No interest or penalties will apply.

What to do next for ERC claims

If you have qualified ERC claims that are not paid, consult with a trusted tax professional to ensure proper documentation and compliance.

The IRS is currently considering reopening the Voluntary Disclosure Program (VDP) at a reduced rate for those with previously processed claims to avoid future compliance action by the IRS.

Our ERC controversy team has both great technical knowledge and IRS examination experience to assist you through this process.