Tax News & Views Electrific ERC Claim Cleanup Claim Roundup

Heads Up: HLB Group, Eide Bailly's worldwide accounting network affiliation, hosts a virtual webinar next week. Tariffs Update: Current State, Outlook, Success Stories and Mitigation Strategies, will take place a week from today. Tune in at 11:00 Central February 18. Registration at the link.

GAO Says IRS "Wrapping Up" ERC claims; Taxpayers Still in the Dark

IRS Closes Out $283 Billion in Employee Retention Credit Claims - Erin Schilling, Bloomberg ($):

The IRS paid out $283 billion as part of a pandemic-era tax credit program that became a magnet for fraud and faced long processing delays, according to a Tuesday report from the Government Accountability Office.

The payout of employee retention tax credits, intended to help businesses stay open during the pandemic, is more than triple the cost estimate of the program when Congress extended it in 2021. The refunds were also largely processed after the effects of the pandemic had largely subsided, according to the GAO report.

...

The IRS closed all claims for the tax credit, other than about 41,000 that are either under audit or appeal, as of the end of 2025, according to the report. But the agency didn’t give GAO documentation to show the closures or provided a definition of what it considers as “closed.”

"More than triple the cost estimate." Well done, Congress.

Troubled Employee Retention Credit May Be Wrapping Up, GAO Says - Trevor Sikes and Tyrah Burris, Tax Notes ($):

In a report released February 10, the GAO emphasized that many of the frustrations expressed by claimants and highlighted by organizations concerning the IRS’s administration of the ERC offer opportunities to facilitate closure of the program and ensure that future programs don’t suffer from the same problems.

For example, the IRS could publicly confirm what it told the GAO regarding its closure of all ERC claims not under examination or appeal, the GAO’s Jessica Lucas-Judy told Tax Notes.

“There’s still no information on [the IRS’s website] about the IRS claim that it has finished processing all of the employee retention credit claims,” Lucas-Judy said. “We think that that’s something that the agency could do that might help anyone who is still waiting to hear about their claim.”

Tonya Rule, Eide Bailly's ERC practice leader, says many taxpayers are still in the dark about where their claims stand:

Taxpayers around the US are still sitting in limbo waiting for their refunds while not receiving any correspondence from the IRS as to the status. Additionally, many of the taxpayers that have received a notice/letter from the IRS and responded timely to the IRS have been left in the dark getting no reply from the IRS, with some waiting over 18 months.

The best advice for business owners is to review their transcripts to verify the IRS has their ERC claim and verify that it has not been denied; if it has, they need to act quickly to avoid missing appeals deadlines. While the IRS makes the statement that all claims are paid except for those under examination or appeal, this has not been our experience as we have several clients with ERC claims that have not received notice of audit.

Business taxpayers can get an online IRS business tax account to access transcripts and otherwise manage their tax lives.

Tonya also notes difficulties in dealing with the IRS on ERC claims:

We are seeing some IRS auditors and appeals officers who do not understand the basic ERC eligibility requirements. It should not be the taxpayers’ cost to have their representatives explain the basic ERC rules to agents.

IRS communication has been poor throughout this process. As the IRS adds this communication to their website the IRS should include information on steps to take for those clients still awaiting their ERC claim that are not under examination or appeal. A further frustration is the lack of communication in the IRS Campus examination process.

Scan Fail

IRS No-Paper Initiative Jammed by Staffing Issues, Watchdog Says - Benjamin Valdez, Tax Notes ($):

The IRS’s goal of scanning all paper submissions likely won’t be fully realized this filing season, according to an agency watchdog.

During the 2025 filing season, the contractors tapped by the IRS to complete its zero-paper initiative were able to scan only 5 percent of the 9.8 million paper-filed forms 940, 941, and 1040 they received, the Treasury Inspector General for Tax Administration found in a report released February 10.

While the IRS has sought to remove paper from the processing pipeline for years, the project has proven to be difficult to scale because of contractors’ staffing limitations and delays in the IRS’s onboarding process, according to TIGTA. The watchdog noted one contractor estimated it would need approximately 600 employees dedicated to the processing work but had submitted only 496 for background checks.

From the TIGTA report (my emphasis):

As of July 2025, the function responsible for these efforts has lost 25 percent of its staffing. This reduction has significantly impacted the IRS’s ability to scan historical documents. For example, the number of pages the IRS scanned internally per week between April 5, 2025, and July 5, 2025, dropped 91 percent from 901,179 to 81,553 pages. The week of July 5, 2025, was the first week after the departure of the tax return processing employees who took the deferred resignation program. In contrast, the external contractor had increased its weekly scanned page capacity by 212 percent from 971,844 to approximately 3 million pages during this same period.

The IRS had not planned to have the ZPI contractors scan historical documents. However, Taxpayer Services management later indicated that the IRS will use the ZPI contractors to scan historical documents during times of low tax return volumes. In December 2025, the ZPI contractors began scanning Forms 709. From the week ending December 13, 2025, to January 24, 2026, ZPI contractors scanned 479,230 historical Forms 709. We are concerned that without additional resources focused on historical scanning, whether internal or contracted, the IRS may not meet the deadline to have all records in a digital format by December 2030. Additionally, the IRS will continue to incur millions in storage costs until it can increase the volume of historical documents scanned and destroy these paper records. The IRS estimated that digitizing historical documents would save approximately $40 million in annual storage costs.

House Allows Vote on Tariff "Emergency" in Setback for Trump

House rejects tariff restrictions in rebuke of Trump and Johnson - Riley Beggin, Washington Post:

The House has rejected an attempt to block votes that would end the national emergency underpinning President Donald Trump’s tariffs, opening the controversial policy up for challenges for the first time in nearly a year. The Republican-controlled chamber had preemptively muzzled opposition to the administration’s trade policy since last March. The latest prohibition expired at the end of January, and House Speaker Mike Johnson (R-Louisiana) attempted to renew it through July as part of a procedural vote Tuesday night.

But three House Republicans — Reps. Thomas Massie (Kentucky), Don Bacon (Nebraska) and Kevin Kiley (California) — voted with all of the chamber’s Democrats to block the move.

House blows open gates on tariff war - Jake Sherman, Ally Mutnick, Max Cohen and John Bresnahan, Punchbowl News:

With that vote, members will have effectively unfettered ability to force up or down votes on the president’s global trade agenda. This will start today.

Rep. Greg Meeks (D-N.Y.) plans to offer a resolution terminating any tariffs imposed on Canada via a Trump executive order in February 2025.

These resolutions are privileged, meaning House GOP leaders must schedule a vote now that Johnson’s effort to block them has failed. Democrats need to wait 15 days from the introduction of such resolutions and forcing a floor vote. If the House approves any resolution, it gets a floor vote in the Senate due to its privileged status.

House Rejects Speaker Johnson’s Effort to Block Tariff Votes - Gavin Bade and Olivia Beavers, Wall Street Journal. "Though Trump could veto any measure that reaches his desk, any successful vote would be a public repudiation of his tariff policy and would likely draw a furious reaction from the White House."

Rates and Markups Around the World

Top Personal Income Tax Rates in Europe, 2026 - Alex Mengden, Tax Foundation. "The top statutory personal income tax rate applies to the share of income that falls into the highest tax bracket. For instance, if a country has five tax brackets, and the top income tax rate of 50 percent has a threshold of €1 million, each additional euro of income over €1 million would be taxed at 50 percent."

These top rates tend to take effect at much lower income levels than they do in the U.S. For example, the top rate in Finland - 37.5%, not including regional income taxes - applies to income over about $61,800. The US top individual rate of 37% only applies to income over $626,350 in 2025 for single filers.

Safe At Last? India strikes a tone of welcome practicality in its transfer pricing safe harbor regime - Chad Martin, Eide Bailly:

India some years back introduced "safe harbor" rates for an array of common services provided by Indian members of MNE groups, ranging from IT enabled services to contract R&D. Despite its stated intention of simplification, the safe harbor regime proved difficult to apply for a number of reasons...

As a result, adoption remained relatively low and transfer pricing controversy continued to resemble a hostage negotiation, except with none of the refreshing clarity of a ransom note.

Blogs and Bits

Trump Accounts - Interesting Idea - Annette Nellen, 21st Century Taxation. "For a baby born in 2025 through 2028, the government will put $1,000 into the account if the baby is a US citizen and has an SSN and the parent or other relative makes the election."

Evaluating Washington’s Proposed Millionaires’ Tax - Jared Walczak, Tax Policy Blog. "As we have noted previously, the proposed tax would yield a top rate of more than 18 percent in Seattle when combined with two Seattle wage taxes and a statewide uncapped payroll tax, making it the highest rate on wage income in the country."

The Case for Corporate Tax: Two Trends Make Pass-Through Taxation Harder To Defend - Edward G. Fox, Zachary Liscow, and Michael Love, TaxVox:

Pass-through taxation was originally meant to serve small, closely held firms. That landscape has changed dramatically. Partnerships now account for 35 percent of US business income, most of which comes from large firms (over $100 million of assets). The number of large partnerships has quadrupled since 2003, now vastly outnumbering large corporations.

These partnerships have become extremely complex. Most importantly, when partnerships are “stacked” (a partnership is a partner in another partnership), these complexities compound and multiply. Now over 30 percent of large partnerships involve at least 20 tiers, and the average large partnership has over 500,000 partners once ownership is traced through multiple layers of partnerships.

When You Run Out of Judges to Bribe

Former Luzerne County attorney sentenced to four years in prison for tax evasion - IRS (defendant name omitted, emphasis added):

Defendant, of Palm Beach, Florida, was sentenced today to 48 months in prison, to be followed by three years of supervised release, for tax evasion in connection with substantial legal fees he earned.

According to court documents and statements made in court, Defendant sought to evade a substantial tax that was due and owing the IRS for 2016 by using “nominee” bank accounts (i.e., accounts in others’ names), causing an accountant to file a request for a filing extension that falsely reported zero estimated tax liability for 2016, and making false statements during an IRS audit in 2019. At sentencing, the Government put forth evidence that Defendant did not file taxes for a period of approximately fifteen years, during which he earned over $18 million in income.

...

In 2009, Defendant pleaded guilty to multiple federal felony offenses for paying bribes to two judges of the Luzerne County Court of Common Pleas and assisting those judges in concealing the bribe payments from tax authorities. In 2011, Defendant was sentenced to 18 months in federal prison for these offenses. The conduct for which he was sentenced today began around the time that he pleaded guilty to the earlier offenses and continued throughout the time of his imprisonment and beyond.

Failing to file is a pretty good way to get IRS attention, especially when you are earning over $1 million annually. But doing so when you are already facing other federal charges takes it to another level.

Also, it seems federal judges aren't as easily bribed as those in the Luzerne County Court of Common Pleas.

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Tax News & Views Electrific ERC Claim Cleanup Claim Roundup

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Joe B. Kristan, CPA