Danny Werfel, IRS Commissioner, speaks after his ceremonial swearing-in at IRS Headquarters in Washington on April 4, 2023.
Ting Shen | Bloomberg | Getty Images
The IRS will reject billions of dollars in applications for tax relief during the pandemic while it works to process lower-risk applications, the agency said Thursday afternoon.
The Employee Retention Credit (ERC) was introduced to help small businesses during the Covid-19 pandemic and is worth thousands of dollars per eligible employee. However, the agency stopped processing new applications in September because of a flood of “questionable claims,” the IRS said in a press release.
The agency added that it would extend this moratorium.
After examining more than a million claims valued at around $86 billion, the IRS said in its press release that it had identified 10 to 20 percent of the highest-risk claims. “Tens of thousands” would be rejected in the coming weeks, the agency said. Another 60 to 70 percent of claims with an “unacceptable risk” would continue to be reviewed, the IRS said.
“We will now use this information to deny billions of dollars in obviously unjustified claims and begin further work to make payments and help taxpayers whose claims do not raise red flags,” IRS Commissioner Danny Werfel said in a statement.
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During the ERC review period, the agency processed 28,000 claims received before September 2023 valued at $2.2 billion and denied more than 14,000 claims valued at $1 billion, the press release said.
In total, efforts to correct erroneous ERC claims have totaled more than $2 billion since last fall, the IRS said.
“This is one of the most complex tax credits the IRS has ever issued, and we continue to ask taxpayers for patience as we untangle this complex process,” Werfel said. “Ultimately, this deadline will help us protect taxpayers from improper payouts flooding the system and assist those who are truly eligible.”
ERC withdrawal program still open
With more than 1.4 million pending ERC claims and many “questionable” filings, the IRS urges taxpayers with pending ERC claims to consider the agency’s payout program.
There's still time to withdraw a claim if you didn't receive payment for a tax period. If you received a check but didn't cash or deposit it, you can return it using this program.
If you are eligible, the IRS will reverse the original ERC claim and no penalties or interest will apply.
“This is a mulligan moment” because ERC errors can still be corrected before the IRS notices them, Dean Zerbe, national managing director at Alliantgroup, previously told CNBC.
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