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IRS Announces Next Steps for ERC

Gil Mitchell, Tonya Rule, and Ben Peeler
June 28, 2024

Key Takeaways

  • The IRS has completed a review of the Employee Retention Credit (ERC) and claims filed. They will use the information gathered to deny improper claims and issue payments to eligible taxpayers. 
  • The IRS has released a checklist, a warning signs document, and a FAQ page to help taxpayers understand the rules and requirements of the ERC and avoid being misled by unscrupulous promoters. 
  • The IRS has established a special withdrawal process for taxpayers who want to withdraw ERC claims that have not been paid or cashed, without interest or penalties.  

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 ERC is one of the most complex credits the IRS has administered, and the IRS continues to ask for taxpayers’ patience as the IRS unravels this complex process.”

— IRS Commissioner Danny Werfel

 

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.

 

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.

 

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About the Author(s)

Gil Mitchell Photo

Gil Mitchell

Senior Manager
Gil helps our clients by using his 36 years of IRS examination experience to guide each examination or tax controversy to the best possible solution. Gil's main focus today is leading the firm's Employee Retention Credit Controversy (ERC) Team to resolve our clients issues with both ERC examinations and unpaid claims.
Tonya Rule

Tonya M. Rule, CPA

Partner/Affordable Care Act Practice Leader
Tonya helps businesses with the rules surrounding the Affordable Care Act. She assists large employers with the compliance requirements, Forms 1094-C and 1095-C, and she also advises them on very technical rules that many employers and advisors aren't aware of. In addition, she works with small businesses who are planning on expanding their current operations to make sure they are doing everything from measuring their employees correctly to deciding on the best insurance plan for their business. Tonya regularly works with clients on various ACA IRS notices and has been very successful in getting most of these penalties abated.
Ben Peeler

Ben J. Peeler, J.D., CPA, LL.M.

Partner/IRS Tax Controversy Practice Leader
Ben joined the firm early in 2014 with many years of tax experience, both as an attorney and an accountant. He specializes in federal tax, controversy and procedure work, assisting with clients in the areas of income tax, estate and gift tax, property tax, sales and use tax, estate planning and many other tax matters. Ben's vast experience includes representing clients before the IRS, as well as representing the IRS before the U.S. Tax Court and during litigation before the federal district courts as a special assistant to the United States Attorney. Today, Ben leads the firm's IRS Practices & Procedures as a federal tax, controversy and procedure specialist and serves on Eide Bailly's National Tax Office team that is committed to helping clients resolve their tax issues.

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