After reviewing more than 1 million Employee Retention Credit (ERC) claims from businesses affected by the pandemic, the IRS said Thursday it would deny tens of thousands of improper high-risk claims.
The ERC, also sometimes referred to as the ERTC, is a refundable tax credit to eligible businesses with employees affected by the pandemic.
The IRS said the ERC review of claims totaling more than $86 billion found 10% to 20% of claims to be in the highest risk group, showing clear signs of erroneous claims. Additionally, between 60% and 70% of all claims were determined to have an unacceptable risk level.
IRS Commissioner Danny Werfel said the ERC is among the most complex tax credits the IRS has administered.
“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,” Werfel said. “We continue to ask taxpayers for patience as we unravel this complex process.”
The review found 10% to 20% of claims with a low risk. For claims without warning signs received before the September 2023 moratorium on processing, the IRS said it would “judiciously” process claims, likely beginning later this summer.
The IRS said taxpayers with claims should await IRS notification before acting. Werfel said the IRS believes many claims were filed by taxpayers who were misled and deluded by others.
“People may think they are on safe ground, but many are simply not eligible under the law,” Werfel said. “The whole world has changed involving Employee Retention Credits since the deepest days of the pandemic. Anyone applying for this credit needs to talk to a trusted tax professional and closely review the eligibility requirements, not someone playing fast and loose and trying to make a fast buck off well-meaning taxpayers.”
