The Internal Revenue Service (IRS) plans to resume payments on older, low-risk Employee Retention Tax Credit claims, otherwise known as ERC or ERTC. In September 2023, the agency issued a moratorium on processing new ERC claims due to fraud and improper, high-risk claims flooding the pandemic-era program. Because of the high levels of fraud and inappropriate claims, only about 10-20% of submitted claims are considered low risk. Even the few eventually approved for the funds may receive their refund in years, not months. Despite the wait, taxpayers with a pending ERC claim should resist offers of ERC advance loans.
Key Takeaways:
- Over one million claims submitted prior to the September 2023 moratorium are still pending review
- Of the submissions that have been reviewed, 10-20% indicate clear signs of being erroneous and an additional 60-70% show an unacceptable level of risk
- The lowest risk group, claims with no eligibility warning signs that were received before September 2023, will begin being processed
- The IRS anticipates sending out the first payments to the low-risk group this summer, pending a final review for calculation errors
- Those waiting for news on their ERC claim should avoid pursuing an “ERC advance” and instead speak with a trusted financial advisor
- If you have a claim that was submitted before the moratorium, your next steps are to wait to hear from the IRS on the status of your claim
Following a months-long period of review, the agency estimates that 1.4 million ERC claims are still pending, but a majority of applicants submitted claims showing an “unacceptable risk of ineligibility.” While the IRS is still committed to not processing new ERC claims submitted after September 14, 2023, the agency expects to begin issuing payments later this summer for low-risk claimants. Claims submitted before the moratorium for the CARES Act program are currently undergoing an in-depth review to identify fraudulent or erroneously submitted claims.
ERC Claimants Should Expect Long Wait Times
IRS Commissioner Danny Werfel stated that the IRS is “deeply concerned about small businesses waiting on their legitimate claims,” adding, “They have been victims of the marketing barrage that gummed up processing with questionable claims. For those with legitimate claims, this review helps the IRS with a path forward, and we’re taking action to help.”
Although the payment process is due to restart this summer, claimants should be prepared for a long wait, Werfel warned. “We deeply appreciate your patience, but there is too much risk for us to return processing speeds to levels that occurred during and just after the height of the pandemic.”
He continued, “These complex claims take time, and we remain deeply concerned about how many taxpayers have been misled and deluded by promoters into thinking they’re eligible for a big payday. People may think they are on a pending claim that doesn’t qualify.” Werfel also urged anyone still considering applying for ERC funds to “talk to a trusted tax professional and closely review the eligibility requirements.” Potential claimants should avoid aggressive ERC marketers “trying to make a fast buck off of well-meaning taxpayers,” Werfel said, before adding, “people should remember the IRS continues to be very active in our compliance lanes on ERC.”
Next Steps for ERC
If you submitted your ERC claim before the moratorium took effect, there’s “no need to take any action at this point.” Werfel emphasized that those with ERC claims should avoid calling IRS toll-free lines or their tax professional because “additional information is generally not available on claims as our processing work continues.” Waiting can be frustrating, but it is a sign that the process is working as intended, with much lower levels of fraud than the program experienced before the moratorium.
Beware ERC Advance Loans
In the meantime, exercise caution towards promoters offering “ERC advances.” These promoters offer to enter into a loan agreement with a taxpayer with a pending claim. The loan is costly, with a 25-40% discount, and there’s the very real risk that you could accept payment from this unregulated entity but eventually be denied the refund or the program closes before you receive funds. You would still be required to pay back the loan. The recommendation from Anders is to resist pursuing any advances and instead wait for further communication from the IRS.
Due to previous IRS guidance, Anders will no longer accept new ERTC clients until the IRS issues additional guidance related to this moratorium and the options available to affected businesses. The Anders CARES Act Consulting team will continue to monitor updates from the IRS concerning the Employee Retention Tax Credit to keep our clients informed. Check out our CARES Act Relief Radar for all pandemic relief-related funding updates.
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