2024-08-27
The Employee Retention Credit (“ERC”) program began as an effort to help businesses during the pandemic, but became the target of aggressive marketing well after the pandemic ended. Some promoter groups called the credit by another name, such as a grant, business stimulus payment, or government relief to increase claims. Findings of the IRS review, announced in June 2024, confirmed concerns raised by tax professionals and others that there was an extremely high rate of improper ERC claims in the current inventory of ERC claims.
The ERC is one of the most complex tax provisions ever administered by the IRS. The IRS is trying to balance protecting from improper claims and making payments to qualifying businesses. The IRS has emphasized it is moving methodically and deliberately on both the disallowances as well as additional payments to balance the needs of businesses with legitimate claims against the promoter-fueled wave of improper claims that came into the agency.
The IRS continues compliance work on questionable ERC claims on multiple fronts, with thousands of audits underway and 460 criminal cases initiated. In recent weeks, the IRS sent out 28,000 disallowance letters to businesses whose pending claims showed a high risk of being incorrect. The IRS estimates that these disallowances will prevent up to $5 billion in improper claim payments.
The IRS is taking additional steps (IR-2024-203, Aug. 8, 2024) to move forward with processing ERC claims, including updates on the processing moratorium, compliance actions and upcoming payments, including denials of improper ERC claims, intensifying audits, and pursuing civil and criminal investigations of potential fraud and abuse.
The IRS has also identified 50,000 likely valid ERC claims that are part of a low-risk group of claims, and is quickly moving them into the pipeline for payment processing in coming weeks.
The first IRS ERC Voluntary Disclosure Program (VDP) to help businesses fix incorrect ERC claims ended in March 2024, with more than 2,600 applications from ERC recipients that disclosed $1.09 billion worth of credits claimed.
The IRS reopened a second ERC Voluntary Disclosure Program for a limited time through November 22, 2024, and allows businesses another chance to correct improper payments at a 15% discount and avoid future audits, penalties and interest.