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IRS processing 400,000 ERC claims worth $10 billion

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There’s good news for businesses that filed accurate Employee Retention Credit (ERC) claims.

The Internal Revenue Service says it has accelerated work on claims of COVID-19 pandemic tax break and is now processing around 400,000 claims. The eligible filings in that group are worth a total of nearly $10 billion.

The tax agency was swamped by ERC claims submitted after aggressive, and some potentially predatory, promoters convinced some companies to improperly file ineligible claims well after the pandemic ended. Some promoters called the credit by another name, such as a grant, business stimulus payment, government relief, or other names besides ERC or the Employee Retention Tax Credit (ERTC).

The confusion, and mass of possibly wrong filings, prompted an IRS moratorium last fall on new claims. Since then, the agency has been sorting through existing filings, determining the legitimate ERC claims to pay and stopping disallowed ones.

The IRS said last week that the claims now being processed include eligible and ineligible claims. However, it noted that the vast majority in this group are being processed for approval.

Those who filed the eligible claims should soon receive their portion. Checks are being mailed for eligible claims with refunds, said the IRS, with more planned in the weeks and months ahead.

“The IRS is working diligently to process ERC claims as quickly as possible, while guarding against improper payments driven by unscrupulous marketers,” said IRS Commissioner Danny Werfel. “In recent weeks, the IRS has made substantial progress in separating eligible claims from the wave of ineligible claims that have come in, and we continue working to refine our models to identify more eligible claims.”

That progress earns both the 400,000 expedited claims and $10 billion to be paid the ol' blog's By the Numbers honor this weekend.

Consolidated claim process for third-party payers: To help speed ERC processing, the IRS has instituted consolidated claim process to help third-party payers and their clients resolve incorrect ERC claims.

Third-party payers report and pay clients’ federal employment taxes under the third-party payer’s Employer Identification Number. They handle clients’ payroll and tax reporting duties. Some of these payers filed ERC claims for multiple employers.

If a third-party payer’s client has since determined it is ineligible for the ERC and wants to resolve their claim, it is the third-party payer that needs to correct it.

The consolidated claim lets a third-party payer that filed a prior claim with multiple clients withdraw only some clients’ claims while maintaining the claims of the qualifying clients.

Following up on false claims: The IRS also noted that findings of its review of ERC claims, announced in June, confirmed concerns raised by tax professionals and others that there was an extremely high rate of improper claims in the current filings.

That’s why current ERC processing also means denying improper claims, and more.

In addition to sending denial letters to those who incorrectly sought ERC relief, the IRS is intensifying audits, and pursuing civil and criminal investigations of potential fraud and abuse in claiming the credit.

Taxpayer ERC clean-up options: The IRS also is giving business owners who filed incorrect ERC claims a couple of chances to straighten out their situations.

If you’ve filed for an ERC, received the money, and then discovered your claim was incorrect, look into the tax agency’s second ERC Voluntary Disclosure Program, or VDP. It runs through Nov. 22.

This latest VDP you can help taxpayers who made incorrect claims after being the target of aggressive marketing from unscrupulous promoters. The disclosure option lets you resolve the incorrect claim amount received by paying back a portion (85 percent) of it. The discounted payback accounts for fees taxpayers likely paid the promoters to file the bad ERC claim.

By letting the IRS know you erred and paying back most of the credit, you’ll also avoid future audits (see false claim follow-up section above), penalties, and interest.

Businesses that filed a wrong ERC claim that hasn’t yet been paid should consider the IRS’ ERC withdrawal option. Here, you remove the claim from the IRS processing queue.

The IRS urges businesses that have questions about an ERC claim, regardless of whether it’s been paid or is still awaiting processing, to review the bad claim warning signs and eligibility requirements.

You also might find these items of interest:

 

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