Everyone wants to know why it is taking so long for the IRS to pay their claims for the employee retention credit (ERC) and what they can do about it. There are steps that businesses can take today, but let’s first review why the IRS is slow-paying these claims.
The IRS has an estimated 1,400,000 ERC claims in its backlog. Last year, when the IRS announced a moratorium on the processing of ERC claims filed after September 14, 2023, its backlog was about 600,000 claims. So, what has happened since last September?
First, Congress proposed legislation in January 2024 that would have prevented the filing of new ERC claims after January 31, 2024. This had the effect of accelerating the filing of unfiled claims as of January 31 to prevent missing the deadline in case Congress passed the bill. Congress did not end up passing the bill, and it seems to be on hold until after the election.
Second, the IRS has identified tens of thousands of fraudulent claims and claims that it believes show clear signs of being incorrect. The IRS indicated that these claims, representing billions of dollars will be rejected.
Third, the IRS announced that it digitized and analyzed about 1 million of the claims in its backlog. It concluded that about 10-20% were high risk, about 60-70% had an unacceptable level of risk, and about 10-20% were low risk. The IRS promised to start paying the low-risk claims by the end of the summer and continue reviewing and auditing the remainder of the claims that are not denied outright.
The IRS has not announced when it will begin paying claims that were filed after September 14, 2023, the date of the processing moratorium. Despite the moratorium and proposed legislation, businesses continue to file ERC claims, increasing the backlog on a weekly basis. Although this is not surprising news, the IRS continues to engage with members of Congress in an attempt to extend the statute of limitations to make assessments on ERC claims, and to stop the filing of new ERC claims prior to the statutory end date.
What’s a Business To Do?
There are four concrete steps that business can take to inquire about or speed up the processing of their ERC claims. Each option has its own merits and potential issues.
- Call the IRS – Businesses can always call the IRS and inquire about the status of their claims. In our experience, this will result in a short discussion where an agent indicates (a) that the IRS has received the claim, (b) that the claim is in processing, and (c) that there is no further information it can provide at this time. This option is not likely to be productive.
- Request a copy of your transcript – The IRS transcript if an official document that shows the activity on a taxpayer’s account. Taxpayers can request their transcript here. Sometimes reviewing the transcript is unhelpful and other times it shows why the claim is not being paid – for example, the claim is under review.
- Contact the Taxpayer Advocate Service (TAS) – The TAS is an independent organization within the IRS that can help taxpayers navigate the IRS if they run into a problem. The service is free and taxpayers can start the process by completing Form 911, Request for Taxpayer Advocate Service Assistance. Taking this path may yield results, but we hear from taxpayers that it is hit or miss. Importantly, the IRS states that taxpayers seeking assistance from TAS will not increase their chances of audit.
- File a refund lawsuit against the IRS – If more than six months have passed since a business filed its ERC claim, the business can file a refund lawsuit against the IRS. This is a great option, particularly for strong ERC claims, because it forces the IRS to review the claim within court-mandated deadlines. The downside of this approach is mainly the fact that lawsuits are public filings that can expose private information, as well as the cost – businesses often need to retain a lawyer that specializes in tax refunds. However, many law firms specializing in this area are offering reduced rates just to advance the litigation to the point of IRS review, and additional fees would be due only if the IRS denies the claim and further litigation is required. Long story short, this is a great option to force the IRS’s hand if the cost can be contained and the business is not averse to the fact that they filed for an ERC to be public.
Before choosing to contact TAS or to commence refund litigation, we recommend that businesses engage a trusted tax professional to make sure their claims are meritorious and substantiated. The relative strength of an ERC claim will likely be a factor in deciding which path is best. For some, initiating a refund lawsuit will be the fastest approach. For others, perhaps a wait-and-see approach is best. For most, unfortunately, it appears the IRS is not in a hurry to resolve its backlog of ERC claims, particularly since the U.S. District Court for the District of Arizona on July 30, 2024 denied a tax advisor’s request to impose an injunction on the IRS to stop the processing moratorium.
The IRS continues to actively audit ERC claims, and having an experienced advisor on your side is important. Our ERC team at Withum has prepared hundreds of ERC claims and has represented more than 60 taxpayers in ERC audits. Let us know if we can help with your ERC claim or audit.
Contact Us
For more information on this topic, please contact a member of Withum’s Business Tax Services Team.
