IRS Finds Most ERC Claims Have Unacceptable Levels of Risk

The IRS plans to deny tens of thousands “improper high-risk” Employee Retention Credit (ERC) claims amounting to billions of dollars.

This decision follows a review of a group of more than 1 million ERC claims that confirmed widespread concerns about improper claims, the IRS said in a Thursday (June 20) press release.

“We will now use this information to deny billions of dollars in clearly improper claims and begin additional work to issue payments to help taxpayers without any red flags on their claims,” IRS Commissioner Danny Werfel said in the release.

In its review, the IRS found that between 10% and 20% of the claims fell into the highest risk group, with signs that they “clearly fall outside” the program’s guidelines, according to the release. The IRS will deny tens of thousands of these claims in the coming weeks.

Another 60% to 70% of the claims were found to have an unacceptable level of risk, the release said. For these claims, the IRS will conduct additional analysis to gather more information.

The IRS also found that 10% to 20% of ERC claims show a low risk, with no eligibility warning signs, per the release. The IRS will begin “judiciously processing” more of these claims, aiming to help small businesses that have been waiting on legitimate claims.

“This is one of the most complex credits the IRS has administered, and we continue to ask taxpayers for patience as we unravel this complex process,” Werfel said in the release. “Ultimately, this period will help us protect taxpayers against improper payouts that flooded the system and get checks to those truly eligible.”

The IRS said in September 2023 that it placed a moratorium on processing new claims for the ERC, a pandemic-era relief program, in response to growing concerns about the influx of ineligible claims and aggressive marketing tactics that put businesses at risk when applying for the ERC.

In December 2023, the agency launched a Voluntary Disclosure Program aimed at assisting businesses that mistakenly filed ERC claims and that want to repay the funds they received in error.