9 months into ERC claim processing moratorium, still a waiting game

In September 2023, the IRS announced a moratorium on the processing of new employee retention credit (ERC) claims because of what it said was rampant fraud.

That moratorium has not stopped the filing of new claims, and the IRS has not been able to process all the claims filed before the moratorium. For example, the owner of a small oil and gas business, who requested anonymity, told the JofA that he hired his trusted payroll company — not an ERC promoter — to prepare the $50,000 claim in December 2022.

The Texas-based owner is still waiting to hear from the IRS, about 18 months after filing the claim.

At least two sessions at last week’s AICPA & CIMA ENGAGE conference addressed the issue of ERC claim backlogs and when the IRS might end the moratorium on processing new claims.

“Soon” is the answer National Taxpayer Advocate Erin Collins was given, she said last week. Dustin Stamper, an enrolled agent and a managing director at Grant Thornton, hypothesized as to why the IRS has remained mostly mum on the subject.

About 1.3 million ERC claims are sitting with the IRS, and, of those, about half were filed after the moratorium was announced, Collins said. Pressure is building on the IRS to do or say something, she said.

The ERC was designed to help certain businesses continue paying employees during the COVID-19 pandemic while their operations were either fully or partially suspended due to a government order or had a significant decline in gross receipts during the eligibility periods. It was generally available to eligible businesses from March 31, 2020, to Sept. 30, 2021, and to Dec. 31, 2021, for recovery startup businesses.

The IRS said earlier this year the processing could begin in late spring but has not released any word of that happening. As of March, the IRS had identified about $1 billion in potential savings from erroneous ERC claims since the moratorium began.

Collins said that members of Congress are “knocking on our [Taxpayer Advocate Service office] door, knocking on the IRS door, saying you need to move these cases forward.”

She estimated that she asks IRS Commissioner Danny Werfel about the moratorium at least once a week.

“And I keep hearing soon, soon, that they’re going to be coming out with guidance as to how to move that whole pile into either … allow them, deny them, or send them to audit but do something,” Collins said. “We can’t just have them sit there.”

The IRS must move the cases, which include claims by “a lot of legitimate companies,” Collins said. “Companies who’ve had hardships, companies who need that money that Congress intended for them to get. We got to get these things processed.”

Collins’s office helps employers who filed their claims before the moratorium and who are suffering a financial hardship, she said.

The Texas business owner said he has not contacted Collins’s office because he is not certain the company fits the definition of financial hardship.

“From time to time, were in a sticky situation, and, every now and then, the [oil] price was good enough where we’re doing well,” he said. “”So, I don’t want to paint a picture that we’re in desperation or anything like that, but it would be nice to have our tax refund paid.”

Stamper, who works in the National Tax Office of Grant Thornton in Washington, where he leads the tax legislative affairs practice, told attendees at another ENGAGE session that the moratorium could be caught up in the fight about a $78 billion tax bill called the Tax Relief for American Families and Workers Act of 2024, H.R. 7024.

The bill, which has been stuck in the Senate since it overwhelmingly passed the House in February, would expand eligibility for the child tax credit and temporarily reinstate the expensing of research or experimental expenditures. It also would restore tax breaks for companies from the law known as the Tax Cuts and Jobs Act, P.L. 115-97, that have expired or would expire in the coming years.

The legislation includes a bar on additional claims for the ERC as of Jan. 31, 2024; the deadline under current law is April 15, 2025. The change would fund the tax package, according to the Joint Committee on Taxation, which said the bill has $77.5 billion in added costs that would be partially offset by $77.1 billion in savings from the revised ERC filing deadline.

Considering that funding mechanism, if the IRS starts paying the ERC claims, that would “also kill the opportunity to do the extenders” in the bill, Stamper said.

“We’ve tried to get information from the IRS on when they’re going to start processing claims …,” he said. “They’ve been pretty opaque about it.”

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