No Date Set for When the IRS Will Resume Processing Employee Retention Credit Claims

Last September, the IRS announced a moratorium on processing Employee Retention tax Credit (ERC) claims after finding widespread fraud promoted by online marketing scams. Subsequently, a tax firm representing taxpayers awaiting ERC claims filed a case in Arizona against the IRS claiming the agency does not have the legal authority to stop processing claims.

IRS Deputy Commissioner Douglas O’Donnell told the Arizona court that the number of ERC claims awaiting processing at the IRS is over 1.4 million, with more than 70% having an “unacceptable level of risk” for fraud. 

While the IRS was expected to resume processing claims earlier this year, it has not yet begun the process and IRS Commissioner Danny Werfel said the moratorium would be lifted in “late spring,” which has come and gone. The IRS has given no exact date on when the processing will resume. O’Donnell told the court that when processing does resume, it would not happen quickly, and claims would be considered on a first in, first out basis. 

The ERC was a pandemic stimulus benefit to help employers keep employees on the payroll. Employers had to show significant revenue loss and suspended operations to be eligible. The benefit was never available to employees or individuals as promoted in fraudulent advertising, and it was also not available to employers who were able to successfully shift to an online platform. The incorrect and fraudulent filings have caused the backlog to balloon.

The IRS has offered to spare large tax penalties for fraudulent or questionable filings if filers withdraw claims. To date, about 6,000 entities have withdrawn claims worth $574 million, and 2,600 taxpayers took advantage of a different program allowing businesses to pay back 80% of improperly received payments, also avoiding large tax penalties.

The IRS has asked Congress for assistance to help weed out the fraudulent claims. Legislation that would have extended the statute of limitations for investigations, and banned new claims, passed the House in January but has not been taken up by the Senate.