Attention FAE Customers:
Please be aware that NASBA credits are awarded based on whether the events are webcast or in-person, as well as on the number of CPE credits.
Please check the event registration page to see if NASBA credits are being awarded for the programs you select.

IRS to Start Processing Lower-Risk Employee Retention Credit Claims, While Denying Tens of Thousands of Improper Claims

S.J. Steinhardt
Published Date:
Jun 21, 2024

The IRS will start to process lower-risk Employee Retention Credit (ERC) claims to help eligible taxpayers, while denying tens of thousands of improper high-risk claims and not lifting its moratorium on the processing of new  claims, the agency announced.

The announcement was reported by Accounting Today, Bloomberg News, The New York Times, The Wall Street Journal, and The Washington Post.

This new phase in the processing of these claims, in a program that has been plagued by fraud, came after a detailed review. That review involved months of digitizing information and analyzing data since last September to assess a group of more than one million ERC claims representing more than $86 billion filed amid aggressive marketing last year, said the IRS.

“The completion of this review provided the IRS with new insight into risky Employee Retention Credit activity and confirmed widespread concerns about a large number of improper claims,” said IRS Commissioner Danny Werfel in the announcement. “We will now use this information to deny billions of dollars in clearly improper claims and begin additional work to issue payments to help taxpayers without any red flags on their claims.”

During this process, the IRS identified between 10 and 20 percent of claims that fall into what the agency has determined to be the highest-risk group, which show clear signs of being erroneous claims for the pandemic-era credit. In addition to this highest-risk group, the IRS analysis also estimates that between 60 and 70 percent of the claims show an unacceptable level of risk.

“We’re seeing clear indicators that the vast majority, at least 70 percent of the ERC claims currently awaiting processing have red flags about their accuracy,” Werfel added during a call with reporters on Thursday, Bloomberg and others reported.

Between 10 and 20 percent of the ERC claims show a low risk, the tax agency said in the announcement.

Businesses have filed 3.6 million claims for the ERC since the program’s debut, the Post previously reported. The ERC’s price tag has now topped $232 billion, far exceeding Congress’s initial expectations, the Post reported Werfel as saying.

Werfel said that the IRS was extending the moratorium to prevent more faulty claims from being submitted, the Times reported. “We worry that ending the moratorium might trigger a gold rush by aggressive marketers that could lead to a new round of improper claims,” he said. He called on Congress to pass legislation that would allow the agency to permanently stop accepting claims. Since September, the IRS has been receiving 17,000 applications for tax credits per week.

As of May 31, the IRS's Criminal Investigation unit had initiated 450 criminal cases, with potentially fraudulent claims worth nearly $7 billion. In all, 36 investigations have resulted in federal charges so far, with 16 investigations resulting in convictions and seven sentencings with an average sentence of 25 months.

The agency said it has received hundreds of referrals about unscrupulous promoters and preparers.

Click here to see more of the latest news from the NYSSCPA.