Danny Werfel, the IRS commissioner, spoke after being ceremonially sworn in at the IRS headquarters in Washington on April 4, 2023. The agency announced that it will extend the moratorium on processing claims for the Employee Retention Credit (ERC). After investigating more than 1 million claims totaling roughly $86 billion, the IRS identified that 10% to 20% of the highest-risk filings will be rejected, and an additional 60% to 70% of claims with an “unacceptable level of risk” will be further examined.
Werfel stated in a release that the IRS will use this information to deny billions of dollars in clearly improper claims and begin issuing payments to eligible taxpayers without red flags on their claims. During the ERC review period, the agency processed 28,000 claims received before September 2023 worth $2.2 billion. They disallowed more than 14,000 claims worth $1 billion. Compliance efforts for erroneous ERC claims have exceeded $2 billion since last fall.
The IRS is encouraging taxpayers with pending ERC claims to consider the agency’s withdrawal program. This program allows taxpayers to withdraw a claim if they haven’t received a payment for any tax period or if they received a check but haven’t cashed or deposited it. The IRS will undo the original ERC claim without applying any penalties or interest. According to Dean Zerbe, national managing director at Alliantgroup, this program provides taxpayers with a “mulligan moment” to fix ERC mistakes before the IRS catches them.
As there are over 1.4 million unprocessed ERC claims and many questionable filings, the IRS is urging taxpayers to consider using the withdrawal program if needed. The agency is working to protect taxpayers against improper payouts that have flooded the system while ensuring that payments reach those who are truly eligible.