IRS Update: ERTC Claim Processing Amid Moratorium and Increased Scrutiny
By Mary Antonetti, Partner, Tax & Business Services
The IRS began a much-publicized moratorium on processing ERTC claims in September. I am often asked if the claims are now being processed. On June 20, 2024, the IRS issued IR-2024-169, which explains that the IRS is working on the oldest claims, but at this point, no claims submitted during the moratorium period will be processed. The IRS is concerned about the number of claims submitted long after the pandemic. They are seeking help from Congress on the future of the program and a possible extension of the statute of limitations.
The IRS has used the time since September to digitize and analyze data. Nearly 1 million claims were submitted on amended paper returns. They have determined that over $86 billion in claims have been filed. 10% – 20% of the claims fall in the highest-risk group, and these are claims the IRS believes show clear signs of being erroneous. The IRS will deny these claims in the coming weeks. The IRS determined that another 10% – 20% of the claims are legitimate, low-risk claims for small businesses. The IRS will process these claims received before the moratorium, and taxpayers will begin to see checks later this summer. In the middle falls the remaining 60% – 70% of claims where the IRS has determined an “unacceptable level of risk.” The IRS will continue to gather information and analyze these claims.
During the moratorium, the IRS processed 28,000 claims worth $2.2 billion and disallowed more than half the claims. The IRS has assessed over $572 million for improper claims since 2020, and the letters have been sent to taxpayers. The IRS estimates thousands more letters relating to 2021 will be sent over the coming months. The IRS has thousands of claims under audit. As of May 31, 2024, the IRS Criminal Investigation has initiated 450 criminal cases, with potentially fraudulent claims of $7 billion. Thus far, thirty-six criminal cases and 18 investigations have resulted in convictions with average sentences of 25 months. The IRS’s Office of Promoter Investigations continues its civil and criminal enforcement actions of unscrupulous promoters and preparers.
The Voluntary Disclosure Program has ended, but the IRS has opened the possibility that another program may be developed. This program resulted in 2,600 claims being withdrawn, totaling $1.09 billion. However, the IRS ERS Withdrawal Program remains active. If a taxpayer believes their organization improperly filed a claim and it has not been processed or the check has not been cashed, the claim can be withdrawn. The IRS will treat the claim “as if” the taxpayer never filed it, and no interest or penalties will apply. This program resulted in over 4,800 entities withdrawing $531 million in claims.
In general, information on the status of the claims is not available, and the IRS does not advise calling toll-free numbers. The processing will resume but at a slower rate than last year. If the IRS determines your claim to be valid with calculation errors, they will recalculate accordingly. There is nothing to do now but continue to be patient and wait for the claims to be processed. If you have any questions or concerns that you may have incorrectly filed your claim, you should consult your tax advisor.
