The IRS recently announced that it is accelerating the processing of 400,000 Employee Retention Credit (ERC) claims, which could lead to $10 billion in tax refunds. The ERC is a refundable tax credit for businesses and tax-exempt organizations impacted by the COVID-19 pandemic. Specifically, it was designed for those whose operations were suspended or whose gross receipts dropped by more than 50 percent. While the credit was meant to provide relief, many businesses have been frustrated by delays in receiving refunds, leading to several lawsuits against the IRS for slow processing or outright denials of claims.
On October 10, the IRS confirmed that the 400,000 claims include both eligible and ineligible submissions. They are working to process the claims, with most of them moving toward approval. Refund checks have already started going out, with more scheduled to be issued in the upcoming weeks and months. IRS Commissioner Danny Werfel acknowledged the importance of these payments for small businesses still trying to recover from the pandemic, describing the situation as one of the most complicated tax administration challenges the IRS has ever faced.
Providing these ERC refunds has become a difficult task for the IRS, with multiple lawsuits filed against the agency over delays and denials. Werfel highlighted that many claims have been flagged as ineligible due to “aggressive marketing” by promoters who encouraged businesses to apply, even if they did not meet the requirements. This has significantly added to the IRS’s workload, as they not only have to process eligible claims but also sift through many ineligible ones.
Number claims facing the IRS
In a declaration related to one of the lawsuits, IRS Deputy Commissioner Douglas O’Donnell noted that the agency received an overwhelming number of claims, many of which are ineligible. He explained that the sheer volume of claims, combined with their complexity, has required manual reviews, further delaying the process. The IRS acknowledged in its October 10 update that as time went on, the ERC became a target for aggressive marketing, sometimes predatory in nature, long after the pandemic had passed.
Despite the challenges, the IRS is also focusing on rejecting fraudulent claims. They are intensifying audits and investigating cases of fraud and abuse. Civil and criminal actions are being pursued where necessary. Werfel emphasized that the IRS is working hard to strike a balance between getting payments out quickly to eligible businesses and preventing improper payments. He mentioned that in recent weeks, the IRS has made significant progress in identifying eligible claims and rejecting the ineligible ones, with continued refinements to their processing models to improve accuracy.
Back in June 2024, the IRS reported that there were still approximately 1.4 million ERC claims waiting to be processed. Werfel has repeatedly asked for patience from businesses, acknowledging the frustration many have felt during the delays. He stressed that the ERC is one of the most complex credits the IRS has ever had to manage, requiring a careful and thorough approach to ensure both fairness and efficiency.
For businesses still waiting for their refunds, the process may seem slow, but the IRS is committed to resolving these claims. They are making progress while guarding against fraud and misuse, ensuring that eligible businesses receive the relief they are entitled to, and fraudulent claims are dealt with accordingly.
Ahead of October 15 filing deadline, how long do I have to keep records for the IRS?
