As of September 2024, the IRS has resumed processing Employee Retention Credit (ERC) claims after pausing to address concerns over fraudulent submissions. The agency is now accelerating the review of claims, with a focus on separating legitimate claims from improper ones. So far, about 50,000 valid claims have been identified and are being processed for payments. However, the IRS is also intensifying audits and investigations to root out potentially fraudulent claims, issuing thousands of disallowance letters in cases of high-risk or improper claims.
Businesses that receive a denial letter must respond within 30 days to preserve appeal rights. The IRS is also advising businesses to be cautious about claims influenced by misleading marketing, which led to a surge in questionable submissions (KPMG)(IRS.gov).
The IRS has made clear that it is moving carefully through claims processing to balance the needs of legitimate businesses with the responsibility to prevent fraud. Additionally, businesses have until April 15, 2025, to file any remaining claims, but should be mindful of ongoing audits and potential legislative updates (Nixon Peabody LLP).
Businesses that have filed or are considering filing for the Employee Retention Credit (ERC) should be especially concerned about the recent IRS actions. Several groups are directly impacted:
- Businesses with Pending ERC Claims: Companies that applied for the ERC and are awaiting refunds should be cautious due to the IRS’s heightened scrutiny on improper claims. These businesses could experience delays in payments as the IRS works to differentiate valid claims from potentially fraudulent ones (IRS.gov).
- Businesses Receiving Denial Letters: If your business has received a denial letter, immediate action is required. Often, these letters may not clearly explain the denial reasons, so seeking professional advice is crucial to preserve appeal rights. Denial letters are being issued in large numbers, particularly for high-risk claims.
- Businesses Considering Filing for ERC: Companies still planning to file claims should carefully evaluate their eligibility. Misleading marketing has caused many businesses to submit improper claims, and the IRS is conducting audits and criminal investigations to curb this. Any new claims should be supported by thorough documentation (KPMG).
- Businesses Affected by Legislative Changes: The IRS has flagged potential legislation that could extend the statute of limitations for auditing ERC claims until 2030. This means businesses might remain vulnerable to audits for years. Furthermore, the deadline to file ERC claims is April 15, 2025, so companies should act soon if they plan to claim.
These developments underscore the importance of compliance and careful documentation for businesses involved with the ERC program.