IRS Updates on ERC Program—Current Status and Next Steps

In a recently-released update regarding the current status of the Employee Retention Credit (ERC) program, the Internal Revenue Service (IRS) announced plans to deny tens of thousands of improper, high-risk ERC claims, while conducting additional analysis and gathering more information for claims showing risk indicators.

For legitimate ERC claims (i.e., claims showing no eligibility warning signs) received prior to the institution of the moratorium on September 14, 2023, the IRS anticipates that some of the first payments will be issued later this summer. However, due to additional compliance efforts and the potential need for a final review, these payments will be issued at a dramatically reduced speed, as compared to last summer.

The IRS clarified that taxpayers do not need to take any action at this point and should await further notification from the IRS regarding the status of their claim.

In the interim, the IRS will continue to process claims received prior to September 14, 2023; however, the IRS has decided to continue the moratorium on claims received after September 14, 2023. While the moratorium remains in effect, the IRS plans to consult with Congress to seek additional help for the ERC program, including “potentially closing down new claims entirely and seeking an extension of the statute of limitations to allow the agency more time to pursue improper claims.”

IRS Initiatives for Taxpayers

The IRS is strongly urging taxpayers with pending ERC claims to review the guidelines checklist provided on the IRS website, consult a tax professional, and use the following IRS initiatives when an issue arises:

Special Withdrawal Process

The Special Withdrawal Process allows employers to withdraw their ERC application before it is processed by the IRS. Additionally, employers who received (but did not yet cash or deposit) an ERC check may use the Special Withdrawal Process to withdraw the claim and return the check. Under either circumstance, the IRS will treat the claim as though it was never filed, and no interest or penalties will apply.

Voluntary Disclosure Program

The Voluntary Disclosure Program (VDP) previously provided employers with an option to pay back an erroneous ERC claim at a significant discount, generally free of interest or penalties. The IRS suspended the VDP on March 22, 2024. However, the IRS is currently considering reopening the VDP at a reduced rate for those with previously processed claims to avoid future compliance action by the IRS. The IRS anticipates the terms will not be as favorable as the initial offering that closed in March. A decision will be made in the coming weeks.

Evaluating Your ERC Claim

The IRS is actively engaging in compliance efforts, such as criminal investigations and audits, for those who have submitted improper ERC claims. Eligibility for ERC depends on the specific facts and circumstances applicable to each employer. Determining your eligibility requires highly nuanced and detailed analysis. Dvorak Law Group and its team of professionals have already assisted several employers in assessing and documenting their eligibility for the ERC and stand ready to do the same for you, whether you are considering making a claim or have already filed one.