The recent press release from the IRS provides critical insights into how they plan to enforce and audit Employee Retention Credit (ERC) claims moving forward. Here are some of the key highlights:

Protecting Taxpayers

The IRS emphasized that its primary goal is to protect taxpayers, which is the rationale behind implementing the moratorium. While this claim might evoke a bit of skepticism from some taxpayers, it’s clear that the IRS is serious about ensuring the integrity of the tax system.

High-Risk Claims

The IRS categorizes approximately 10-20% of ERC claims as high-risk or clearly erroneous. These are the claims that the IRS is most likely to target for enforcement and auditing.

Unacceptable Risk Levels

Even more striking is that the IRS considers 60-70% of all ERC claims to have an unacceptable level of risk. With 1.4 million ERC claims pending, this statistic suggests that nearly a million claims may have significant issues. This highlights the IRS’s view of the widespread risk within the ERC claims landscape.

Processing Delays

The IRS has also announced delays in issuing checks, with the earliest expected time frame being late summer. However, based on past patterns, this might extend to fall. The slow and measured pace of issuing checks is attributed to several factors:

• Manpower Issues: Limited staff to handle the volume of claims.
• Complex Credit: The complexity of the ERC itself requires thorough evaluations.
• Subjective Qualifications: Many qualifications are subjective, necessitating a detailed review of facts and circumstances.

Given the IRS’s stringent approach, claimants must have robust documentation to support their positions. This includes ensuring that all claims are backed by thorough and accurate records to withstand potential scrutiny.

The press release highlights the importance of understanding the IRS’s perspective and being prepared for a meticulous review process. Proper documentation and adherence to guidelines are essential to navigate the complexities of ERC claims successfully.

Disclaimer: We want to remind you that while we do have expert tax attorneys and tax professionals working on our team and for our clients, this blog is not legal or tax advice. But we do want to help. Reach out and schedule a time to speak with me or one of my teammates to review your unique set of facts and circumstances and see how we might be able to help you.

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