IRS Issues Warning Shot for Taxpayers with Pending ERC Claims

by Prof. Robert Bloink and Prof. William H. Byrnes

For nearly a year, the IRS has been focused on investigating and evaluating businesses who may have improperly claimed COVID-era employee retention credits—whether due to a basic misunderstanding of the law or the work of aggressive promotors promising a big payday. Now, after assessing more than one million claims, the IRS has announced that the vast majority of ERC claims that were filed prior to last year’s moratorium show signs of being improper. In fact, the IRS found that somewhere between 10% and 20% of all claims have significant red flags. Given this warning shot, now is an important time for business clients with pending ERC claims. These clients still have the opportunity to use the IRS withdrawal process to withdraw improper claims—and, of course, clients with legitimate ERC claims can now expect the IRS to begin processing their refunds.

Unpacking the Results of IRS Analysis

According to the IRS release, they have now digitized information and analyzed data related to over one million ERC claims. Somewhere between 10% and 20% of all claims analyzed show clear signs of being erroneous and improper. Based on the results, they plan to deny tens of thousands of improper ERC claims (worth billions of dollars) and also start processing lower risk claims that don’t contain any red flags.