IRS Update on the Employee Retention Credit
Good News — Open Claims on the Road to Resolution
By Christopher Migliaccio, JD, Partner
The IRS announced on Thursday, August 8, 2024 updates on its handling of the remaining open Employee Retention Credit (ERC) claims – including a wave of disallowances, expected payments and the reopening of processing for some claims received after September 14, 2023. Read on for more details of the IRS announcement.
IRS Plan of Action
In June 2024, the IRS announced the results of its review of the unprocessed claims received prior to the moratorium on the processing of claims received after September 14, 2023.
The IRS has now announced that it has issued 28,000 disallowance letters, expected to cover $5 billion in claims. The IRS has found that in the prior wave of disallowance letters from earlier this year, about 90% were properly issued.
The IRS also indicated that 50,000 “low-risk” claims will be paid out quickly.
Possibility of Appeal
If you receive a disallowance letter, there is a chance to appeal, but a response must be made to the IRS within 30 days of receiving the letter. In our experience, at least some disallowances come from a lack of IRS data and should be replied to with the appropriate information showing qualification.
Big Change on the Moratorium
In perhaps the biggest news, the IRS announced that it will begin “judiciously” processing ERC claims filed between September 14, 2023 and January 31, 2024. This comes not long after the IRS won a court case allowing it to keep the moratorium in place.
The IRS indicated that, similar to the claims from prior to the moratorium, work would first start with the highest and lowest risk claims.
“The moratorium has been, without a doubt, a success,” IRS Commissioner Werfel said. “It slowed the number of claims coming in. The marketing on TV and radio dropped dramatically. It gave us time to focus on our compliance work, and, importantly, it gave us time to analyze the massive inventory of ERC claims that came in.”
Related Notes
- The January 31 cut-off date is linked to the still pending Tax Relief for American Families and Workers Act, which was passed by the House of Representatives in January but recently failed a vote in the Senate.
- The IRS updated prior reports on the ERC withdrawal program, indicating that more than 7,300 entities had withdrawn claims of $677 million.
- They also noted that the ERC voluntary disclosure program had led to the return of $1.09 billion worth of credits.
- Further, the IRS has initiated 460 criminal cases, covering potentially fraudulent claims of nearly $7 billion, and indicated they would continue pursuing cases against unscrupulous ERC promoters.
Takeaways
The ERC remains a significant issue, long after the pandemic that it was meant to respond to ended. The IRS’ continued work to take on the bad actors in the ERC space and has required many businesses with legitimate claims, who have worked with a trusted tax professional and documented their qualification, to continue waiting for the processing of the credit – although it appears that there may be an end in sight. Those who may have worked with bad actors should use this time to do a thorough review of their ERC qualification.
Read the full IRS announcement here.
Contact Us
PKF O’Connor Davies has helped hundreds of companies across a number of industries to determine their ERC qualification, calculate their credit and help them file amended payroll tax returns.
If you have questions about the employee retention credit, contact your client service team or:
Christopher Migliaccio
Partner
ERC Services Leader
cmigliaccio@pkfod.com