Breaking News: The IRS Has Just Updated Their Position Related to Denying or Paying ERC Claims

Posted by Lee Reams Sr., BSME, EA on

The Internal Revenue Service (IRS) has announced June 20, 2024, significant updates regarding the processing of Employee Retention Credit (ERC) claims, as detailed in IR-2024-169. This announcement is crucial for tax preparers who are guiding their clients through the complexities of ERC claims. The IRS's new approach involves denying tens of thousands of high-risk claims while resuming the processing of low-risk claims. This article aims to provide tax preparers with a comprehensive understanding of the IRS's current position, the criteria for claim denial and processing, the timeline for refunds, and the availability of the voluntary withdrawal program.

Understanding the IRS's Current Position - The IRS has undertaken a detailed review to protect taxpayers and small businesses from improper ERC claims. This review has revealed that a significant number of claims are at high risk of being improper. As a result, the IRS plans to deny these high-risk claims while focusing on processing lower risk claims to ensure that eligible taxpayers receive their refunds.

High-Risk Claims: Criteria for Denial - The IRS's review identified that between 10% and 20% of ERC claims fall into the highest-risk category. These claims exhibit clear signs of being erroneous and fall outside the guidelines established by Congress. The IRS has flagged these claims for denial in the coming weeks. High-risk indicators include:

  • Inconsistent or Incomplete Documentation: Claims lacking proper documentation or with inconsistencies in the provided information.
  • Excessive Claim Amounts: Claims that significantly exceed the expected amount based on the number of employees and wages paid.
  • Non-Compliance with Eligibility Criteria: Claims from businesses that do not meet the eligibility requirements set forth by the ERC guidelines.

Tax preparers should advise their clients to review their claims for these red flags and prepare for potential denial if any of these indicators are present.

Low-Risk Claims: Criteria for Processing - On the other end of the spectrum, the IRS has identified that between 10% and 20% of ERC claims show a low risk of being improper. These claims do not exhibit any eligibility warning signs and were received prior to the moratorium last fall. The IRS will begin processing these low risk claims judiciously, with the first payments expected to go out later this summer. However, it is important to note that the processing pace will be significantly slower than during the pandemic period due to the need for increased scrutiny.

Timeline for Refunds - For low-risk claims, the IRS anticipates that some of the first payments will be issued later this summer. However, the overall processing time will be slower than in previous periods. The IRS has emphasized that taxpayers with claims do not need to take any action at this point and should await further notification. Tax preparers should inform their clients to be patient and not to call IRS toll-free lines, as additional information on these claims is generally not available during the ongoing processing work.

The Voluntary Withdrawal Program - Considering the large number of questionable claims, the IRS continues to urge those with unprocessed claims to consider the special IRS ERC Withdrawal Program. This program allows businesses to withdraw their ERC claims to avoid future compliance issues. Here are the key points tax preparers need to know about the withdrawal program:

  • Eligibility: Businesses with unprocessed ERC claims or those who have received an ERC check but have not cashed or deposited it can use this program.
  • Process: The IRS will treat the claim as though it was never filed, and no interest or penalties will apply.
  • Benefits: This program helps businesses avoid future compliance actions, including audits, and provides a clean slate for those who may have submitted improper claims.

 Detailed Withdrawal Instructions – Available at: 


Who Should Consider Withdrawal? - Tax preparers should advise their clients to consider the withdrawal program if:

  • Uncertainty About Eligibility: If there is any doubt about the eligibility of the claim, it is safer to withdraw and avoid potential compliance issues.
  • Improper Claims: If the claim was submitted based on aggressive marketing or misinformation, withdrawing the claim can prevent future complications.
  • Unprocessed Claims: For businesses with unprocessed claims, withdrawing can be a proactive step to avoid delays and potential denials.
  • Compliance Efforts and Future Actions - The IRS's compliance efforts around erroneous ERC claims have now topped more than $2 billion since last fall. This includes the special ERC Voluntary Disclosure Program (VDP), which led to the disclosure of $1.09 billion from over 2,600 applications. The IRS is currently considering reopening the VDP at a reduced rate for those with previously processed claims to avoid future compliance action. If reopened, the terms will likely be less favorable than the initial offering that closed in the spring.

Key Takeaways for Tax Preparers - Review Claims for High-Risk Indicators: Ensure that your clients' claims do not exhibit any high-risk indicators that could lead to denial.

  • Prepare for Slower Processing Times: Inform clients that the processing of low-risk claims will be slower than during the pandemic period.
  • Consider the Withdrawal Program: Advise clients with unprocessed claims or those uncertain about their eligibility to consider the voluntary withdrawal program.
  • Stay Informed About Compliance Efforts: Keep abreast of the IRS's ongoing compliance efforts and potential reopening of the VDP to provide the best advice to your clients.

The IRS's latest announcement regarding ERC claims underscores the importance of careful and accurate claim submission. As a tax preparer, your role is crucial in guiding your clients through this complex process. By understanding the IRS's current position, identifying high-risk claims, and considering the voluntary withdrawal program, you can help your clients navigate the ERC landscape effectively and avoid future compliance issues. Stay informed, review claims diligently, and provide your clients with the best possible advice to ensure their compliance and eligibility for the Employee Retention Credit.