IRS updates ERC claims options
Note: This article was updated October 20, 2023, to include information on the IRS’s ERC withdrawal option. See update at end of this article.
On September 14, 2023, the IRS announced its immediate suspension of Employee Retention Credit (ERC) claims processing.
The action was in response to growing concerns over ERC scam promotions and other program misuses. “The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants,” IRS Commissioner Danny Werfel said in a statement.
Employers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and December 31, 2021. To be eligible, employers must have:
- Sustained a full or partial suspension of operations due to governmental orders issued due to COVID-19 during 2020 or the first three quarters of 2021,
- Experienced a significant decline in gross receipts during 2020 or a significant decline in gross receipts during the first three quarters of 2021 or
- Qualified as a recovery startup business for the third or fourth quarters of 2021.
To date, the IRS has received approximately 3.6 million ERC claims since the launch of the pandemic-era relief program. As of July 31, 2023, IRS Criminal Investigation has initiated 252 investigations involving over $2.8 billion of potentially fraudulent ERC claims.
For months, the IRS has issued warnings to taxpayers to beware of promoters pressuring them to claim, and the IRS has placed the ERC on its Dirty Dozen list.
As the IRS continues working out additional details on the ERC, the agency recommends several steps for affected businesses, depending on where they are in the process:
- For those who haven't filed a claim yet, consider reviewing the guidelines and waiting to file: For those considering filing a claim, the IRS urges businesses to carefully review the ERC guidelines during the processing moratorium period. The IRS urges businesses to talk to a trusted tax professional — not a tax promoter or marketing firm that suggests most businesses should qualify for the ERC and charges a contingency fee for their work. Under current law, the deadline for filing a 2020 ERC claim is April 15, 2024, and April 15, 2025, for a 2021 ERC claim.
- For those currently awaiting an ERC claim: For those who currently have an ERC claim on file (the IRS reports they have over 600,000 unprocessed claims), the IRS will continue processing these claims but at a greatly reduced speed. The IRS says processing times during the moratorium will be at least 180 days. We expect the IRS to issue additional information requests and/or initiate an audit on many of these claims in process. These actions will increase processing times significantly beyond the 180 days.
- Withdraw an existing claim for businesses that have already filed: For those that have a pending claim, the IRS recommends they review the program guidelines with a trusted tax professional to confirm they qualify. The IRS feels that many of the unprocessed claims do not qualify. The IRS announced a special withdrawal option for filed ERC claims that have not yet been processed or where ERC refund checks have not been cashed. Continue reading below for more information on the new option.
- Wait for the IRS ERC settlement program to be finalized: In prior warnings, the IRS has informed taxpayers that if they are determined to not qualify, even if they engaged a third party, they would be required to repay the ERC claim along with interest and possibly penalties.
To address this concern, this fall, the IRS will provide additional details on the settlement program to allow businesses to repay ERC claims. The settlement program will enable businesses to avoid penalties and future compliance action. The IRS says they are assessing options for businesses that paid a contingency out of the ERC payment.
The IRS announced it will let taxpayers withdraw ERC claims they believe don’t qualify
On October 19, 2023, the IRS issued News Release IR-2023-193 announcing a new withdrawal process for ERC claims.
The IRS created the withdrawal option to help taxpayers who were pressured or misled by ERC marketers or promoters into filing ineligible claims and are concerned about their ERC claim’s accuracy.
Claims that are withdrawn will be treated as if they were never filed, meaning the IRS will not impose penalties or interest.
In order to be eligible to participate in the withdrawal process, the taxpayer needs to meet all of the following criteria:
- They made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X)
- They filed the adjusted return only to claim the ERC, and they made no other adjustments
- They want to withdraw the entire amount of their ERC claim
- The IRS has not paid their claim, or the IRS has paid the claim, but they have not cashed or deposited the refund check
How Wipfli can help
The IRS will continue to update information pertaining to the handling of ERC claims. Wipfli’s team is closely monitoring the developments and can help affected taxpayers assess their options.
We can also help you navigate the IRS procedure to withdraw an ERC claim if you were pressured or misled by an aggressive ERC Mill and meet the criteria set out above.
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