IRS Will Reject Billions of Dollars in ERC Claims

The IRS will deny tens of thousands of employee retention tax credit claims in the coming weeks following an internal review on thousands of fraudulent claims. 

During the months-long review, IRS officials digitized more than one million ERC claims and analyzed related data, ultimately putting claims into various categories based on fraud risk. 

Officials said an estimated 10% to 20% of claims show clear signs of being erroneous, between 60% and 70% have an “unacceptable level of risk,” and 10% to 20% show a low risk.

IRS officials will begin processing claims with no eligibility warning signs and conduct additional analysis on unacceptable risk level claims.

Officials expect to start paying small businesses who processed claims with no warning signs later this summer. 

ERC Program

The IRS implemented the ERC program during the COVID-19 pandemic to help employers pay workers during pandemic-related shutdowns. 

The eligibility period to qualify for the credits was between March 2020 and December 2021, but employers could continue to file amended tax returns. 

The IRS put a moratorium on claims in September while the agency took time to investigate improper claims. 

The agency processed 28,000 claims worth $2.2 billion and rejected more than 14,000. 

Up to that point the agency had processed 28,000 claims worth $2.2 billion and rejected more than 14,000 claims. 

Officials said businesses should withdraw claims they do not want the IRS to process for any tax period that has not been paid yet.