Will Your ERC Claim be Rejected?

Audio version available here (2 min.)

The IRS has released a vital update to the Employee Retention Credit situation we’ve been covering for several months. Remember that back in September of 2023, the IRS imposed a moratorium on new claims processing of ERC. Now, claims are being processed once more, and the IRS plans to reject most. What could this mean for your claim?

Keep in mind that the following updates are for claims submitted prior to September 14th, 2023, and the moratorium on new claims processing remains in place.

For those who submitted their ERC claims before the moratorium was enacted, the IRS is currently processing and making decisions on these claims. The catch is that the IRS is only interested in approving low-risk claims, and that encompasses less than 20% of all claims submitted. Of the rest of the claims, 10-20% have “clear signs of being erroneous” and are labeled as “highest-risk”. Another 60-70% of claims have an “unacceptable level of risk”. These claims are likely to be rejected, saving the government potentially billions of dollars in fraudulent ERC payouts.

Keeping small businesses in mind, the IRS looks to prioritize the 10-20% of claims with “no eligibility warning signs” so payments can be made as soon as possible. The timeline for these payments could start later this summer, but the IRS warns that payments will be rolled out at a “dramatically slower pace” as it scrutinizes each claim for potential issues. Typically, old claims will be the ones processed first.

The Employee Retention Credit program continues to be a problematic effort for the IRS. Since September, it has rejected tens of thousands of claims worth more than $1 billion, and with this recent announcement, will reject thousands more in the coming months. Because of this, the IRS recommends the ERC Withdrawal Program if you submitted a claim that has not yet been processed. For more information on how this program works, read our tutorial. If you’d like personalized advice on your ERC claim, reach out to the XQ CPA tax team by calling us or making an appointment at the link below. We are here to help you.

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Source:

https://www.irs.gov/newsroom/irs-enters-next-stage-of-employee-retention-credit-work-review-indicates-vast-majority-show-risk-of-being-improper