Navigating the next phase: IRS moves on Employee Retention Credit claims

Introduction

The IRS recently announced the completion of a detailed review of over one million Employee Retention Credit (ERC) claims, prompting it to enter into the next stage of ERC claims processing. Per the news release, the review involved months of digitizing information and analyzing data since last September to assess a group of more than one million ERC claims representing more than $86 billion filed. Additionally, the IRS informed taxpayers on the status of the ERC moratorium and ERC claim withdrawal process, contemplates reopening the voluntary disclosure program and provides additional insight into its pursuit of curbing abuse.

Key takeaways

• The IRS categorized ERC claims into three categories of risk: high, medium and low, but did not indicate the basis on how risk was identified or determined.
• The highest risk claims will soon be denied, and the lowest risk pre-moratorium claims will soon begin processing. Payments are targeted to begin later this summer, with the oldest claims being processed first.
• The IRS will be conducting additional analysis “to gather more information with a goal of improving the agency’s compliance review, speeding resolution of valid claims while protecting against improper payments” before it begins processing medium risk claims.
• The moratorium is still in place and the IRS has no intention of ending it until Congress can be consulted on new legislation, including the early-sunsetting of 2021 ERC claims and a potential extension of the statute of limitations.
• The IRS ERC withdrawal program is still open to help alleviate the backlog of 1.4 million unprocessed claims and the IRS is contemplating reopening the ERC Voluntary Disclosure Program, albeit with less favorable terms.