The IRS released an update on their review of the Employee Retention Credit (ERC). You may recall the IRS announced last fall a moratorium on processing claims submitted after September 14, 2023, to give the agency time to digitize information on the large study group of nearly 1 million ERC claims.

Read the release in its entirety – IR-2024-169.

Here are some key takeaways from this important update:

  • The review involved months of digitizing information and analyzing data since September 2023, to assess a group of more than 1 million ERC claims representing more than $86 billion.
  • IRS identified 10% to 20% 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.
  • The IRS analysis also estimates 60% to 70% of claims show an unacceptable level of risk. For this category of claims with risk indicators, the IRS will be conducting additional analysis to gather more information.
  • 10% to 20% of the ERC claims show a low risk. For those with no eligibility warning signs that were received prior to last fall’s moratorium, the IRS will begin judiciously processing more of these claims.
  • During the ERC review period, the IRS continued to process claims received prior to September 2023. The agency processed 28,000 claims worth $2.2 billion and disallowed more than 14,000 claims worth more than $1 billion.
  • IRS is assessing whether to reopen special ERC Voluntary Disclosure Program to help taxpayers get into compliance on paid claims and avoid future IRS compliance action, including audits.

Special IRS Withdrawal Program Remains Open

  • Given the large number of questionable claims indicated by the new review, the IRS continues to urge those with unprocessed claims to consider the special IRS ERC Withdrawal Program to avoid future compliance issues.
  • Businesses should quickly pursue the claim withdrawal process if they need to ask the IRS to not process an ERC claim for any tax period that hasn’t been paid yet.
  • Taxpayers who received an ERC check — but haven’t cashed or deposited it — can also use this process to withdraw the claim and return the check.
  • IRS will treat the claim as though the taxpayer never filed it. No interest or penalties will apply.

This continues to be an area of concern for the IRS. If you have claims still in process, you will probably see correspondence in the next 4 to 6 weeks informing you of the IRS’ position and next steps.

We strongly encourage anyone receiving an IRS notice or correspondence related to their ERC claim to seek professional assistance. As always, the team at KT is here to help if you have questions or concerns related to the ERC.