Employee Retention Credit “High Risk” Claims Denied

If you’re expecting your Employee Retention Credit (ERC) claim payment to be processed any day now, you might expect to wait a little longer.

The Internal Revenue Service (IRS) recently announced plans to start processing low risk ERC claims that have been on hold since the IRS moratorium instituted on September 14, 2023. In conjunction with the new round of processing, the IRS plans on denying tens of thousands of “high risk” and clearly improper claims. The IRS has invested time and energy in the last several months to perform a review and analysis of more than one million ERC claims totaling over $86 billion. Their findings were concerning, providing new insights into risky ERC activity and confirming widespread concerns about many improper claims.

The IRS analysis results showed clear signs of applicants falling outside the guidelines for the tax credit. In fact, between 10% and 20% of claims fall into the highest risk group, which the IRS considers to be improper. In addition to this highest risk group, the IRS analysis also estimates between 60% and 70% of the claims show an unacceptable level of risk. The IRS plans to deny the highest risk claims in the coming weeks.

So what does all of this mean? The IRS is committed to providing taxpayers who have legitimate, low risk claims with proper payments, while continuing to implement additional safeguards and an increased need for scrutiny. If your ERC claim was categorized as low risk by the IRS, the agency says they will start processing these claims immediately, with payments beginning this summer. The IRS also noted that any claims submitted after the original moratorium, September 14th, 2023, will not be processed at this time due to an increased level of potential fraud with those claims.

As with any guidance issued by the IRS, it’s important to have a conversation with your tax or financial advisor to discuss how these recent changes will impact your ERC claim, no matter where you are in the process.