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Employee Retention Credit Update

On June 20^th, the IRS provided an update (IR-2024-169) on its processing of employee retention credit (ERC) claims. Below is a high-level summary of the IRS update.

First, the IRS has completed its review of the roughly 1 million ERC claims filed last year and divided them into three categories of risk.

1. High-risk. Between 10% and 20% of the claims showed clear signs of being erroneous and were categorized as having the highest level of risk. The IRS announced plans to deny tens of thousands of these high-risk claims in the next few weeks.
2. Unacceptable risk. Based on the IRS’ analysis, between 60% and 70% of the claims had sufficient “risk indicators” to present an “unacceptable” level of risk to warrant immediate processing. As to these claims, the IRS will be conducting additional analysis to gather more information.  Presumably, this will come in the form of information document requests (IDRs).
3. Low-risk. Between 10% and 20% of the ERC claims had no eligibility warning signs. For those low-risk claims received prior to last September’s moratorium, the IRS stated it will begin judiciously processing more of these claims on a first-in-first-out basis.  The IRS anticipates some of the first payments in this group will be made in the next few weeks.  Refunds as to low-risk claims with calculation errors are expected to go out later this summer.  In general, however, the IRS warned payments will be made at a much slower pace compared to the pandemic period.

Next, the IRS gave general updates on its processing status. The ERC claim inventory is currently 1.4 million. No claims submitted during the moratorium period, i.e. after Sept. 14, 2024, will be processed by the IRS at this time. While the IRS had previously established an ERC “hotline”, the announcement advised taxpayers not to call the IRS’ toll-free lines because additional information is generally not available on these claims.

Lastly, the IRS touted its success in recovering more than $1.09 billion through the special ERC Voluntary Disclosure Program (VDP), which ended in March 2024.  The IRS is considering reopening the VDP at a reduced rate for those with previously processed claims to avoid future compliance action by the IRS. The IRS further indicated it would be providing quarterly updates on its processing of ERC claims.  For more information regarding employee retention credit (ERC) claims, reach out to Daniel Mellor of Kulzer & DiPadova, P.A.