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Employee Retention Credit Claimants Can Sue IRS Over Unprocessed Claims

S.J. Steinhardt
Published Date:
Jun 18, 2024

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Businesses with legitimate Employee Retention Credit (ERC) claimants that have yet to receive their money can take legal action against the tax agency, Tribune News Services reported.

A provision in the tax code allows taxpayers who have filed refund claims to sue the IRS if they have not heard from the agency within six months, or if their claim was denied and they believe it to be legitimate.

The IRS paused processing ERC claims last year to allow it to add more safeguards to prevent future abuse and to protect businesses from predatory tactics. It has since established a voluntary disclosure program to help businesses that received and deposited refunds after filing erroneous ERC claims.

For those tax advisory firms and businesses that have have filed legitimate claims, turning to the courts to force the IRS to issue their refunds may be an option.

“A lot of small businesses are trying to decide: Should we keep waiting for the IRS or, since it’s been more than six months since we filed our claim, should we go ahead and just file a refund lawsuit?” said Brian Bernhardt, a partner at Fox Rothschild who focuses on federal tax issues.

The IRS increased its ERC claim processing time from 90 to 180 days but, as of March, it faced more than 1 million unprocessed claims, Tribune News Services reported.

Jonathan Cardella runs Strike Tax, a tax advisory firm in Boise, Idaho that initially focused on advising businesses on how to access research-and-development tax credits. His firm boomed as a result of businesses wanting to pursue the ERC, but he now claims that he missed out on $5 million in revenue through uncollected fees, since businesses he advised have yet to receive their credit. He said that he had to lay off 20 staff members, and is unable to sue the IRS, since his business would not have directly received the tax credit.

For the moment, “[w]e’re still hoping the IRS can do the right thing, but we’re sort of in a bit of limbo as we work to develop our first handful of plaintiffs,” he said. “As soon as I get my first client who has the chutzpah to do it, we’re going to file our first case.”