COVID-19 Employee Retention Credit (ERC) Timeline and Update:
The Employee Retention Credit (ERC) program, designed to help businesses through the pandemic, has proven to be one of the most complex tax credit programs with significant processing challenges as shown in the timeline above. In September 2023 the IRS announced a full stop moratorium on ERC claim processing with the intention of pausing to allow the IRS to refine their ERC processing measures with a focus on digitization. Now, they have rolled that moratorium back a bit and have announced that they will slowly resume some ERC claim processing, specifically for claims filed between September 14, 2023, and January 31, 2024, with a focus on both the highest and lowest risk claims.
In recent weeks the IRS has sent out 28,000 denial letters to businesses with questionable claims, stopping about $5 billion in improper ERC payouts. As of July 1, 2024, the IRS Criminal Investigation division has initiated 460 cases involving potentially fraudulent ERC claims, with nearly $7 billion in credits under scrutiny. Additionally, the IRS has launched investigations into improper ERC promoters and preparers who may face criminal penalties for improperly encouraging businesses to claim ERC.
The ERC claim withdrawal process for unprocessed ERC claims has led to more than 7,300 entities withdrawing $677 million in credit claims, and the ERC Voluntary Disclosure Program received more than 2,600 applications from ERC recipients disclosing $1.09 billion in ineligible credits.
On the plus side, the IRS has also recently approved 50,000 legitimate ERC claims and is now “quickly moving them into the pipeline for payment processing in coming weeks.” Despite the progress, the IRS announcement also acknowledged concerns raised by tax professionals regarding potential errors in claim disallowance, and therefore said that they are closely monitoring and considering that feedback and will “adjust its processes” as needed. Of course, a business that receives a denial of their ERC claim has the option to file an administrative appeal of that decision.
In addition to the renewed claim processing, the IRS also announced a limited time reopening of the Voluntary Disclosure Program (VDP), allowing businesses that made incorrect ERC claims to self-correct without interest nor penalty. This reopened version of the VPD offers a 15% discount for businesses repaying credits, which is a slightly reduced rate from the first program’s 20% discount. The newly reopened VDP will close on November 22, 2024, and the IRS has referred to it as the “final window of opportunity for misled businesses to make adjustments and avoid future compliance action by the IRS.”
While these recent announcements are welcome ones, it is important to stay in-the-loop on their latest ERC announcements in case anything changes. We will continue to keep our clients informed, and we are here to help any client through an ERC audit – regardless of whether we helped with the original ERC claim filing. Our team is knowledgeable of the complexities of an IRS audit, including the required documentation to support an ERC claim. For an ERC audit, you’ll need to provide documentation such as proof of government shutdowns or the necessary decline in gross receipts, copies of worksheets used to calculate your ERC claims for each audited quarter, and relevant tax returns, among many other items. Additionally, you’ll need to prepare written explanations for key decisions, like how you determined eligibility based on the decline in gross receipts test or your status as part of an aggregated group. Rest assured, we are here to guide you every step of the way, so please don’t hesitate to reach out.
- March 27, 2020: ERC enacted as part of the CARES Act
- December 27, 2020: ERC extended and adjusted as part of the Consolidated Appropriations Act
- March 1, 2021: Notice 2021-20, with substantial ERC guidance, released
- March 11, 2021: ERC extended and adjusted as part of the American Rescue Plan of 2021
- November 15, 2021: ERC extended and adjusted as part of Infrastructure Investment and Jobs Act
- September 14, 2023: IRS announces ERC processing moratorium via IR-2023-169
- October 19, 2023: IRS announces ERC withdrawal process via IRS-2023-193
- December 21, 2023: IRS announces ERC voluntary disclosure program (VDP) via IR-2023-247
- March 22, 2024: ERC VDP closes
- April 15, 2024: Deadline for 2020 ERC claims
- June 20, 2024: IRS announces plan to address ERC backlog via IR-2024-169
- August 8, 2024: IRS announces some post-moratorium ERC claim processing via IR-2024-203
- August 15, 2024: IRS announces temporary reopening of adjusted VDP via IR-2024-212
- November 22, 2024: Second VDP closure date
- April 15, 2025: Deadline for 2021 ERC claims
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
