Taxpayer Advocate Advocates For Paying Out Low Risk ERC Claims Already

While the IRS is “working diligently to process Employee Retention Credit (ERC) claims as quickly as possible,” according to them, countless businesses that qualified for the “fraud-ridden” pandemic-era credit are still sitting around waiting for payments. Speaking about these delays in a Fortune opinion piece earlier this year, former IRS commissioner Chuck Rettig said “fighting fraud should not come at the expense of legitimate small businesses with claims pending at the IRS.” Alas, that’s exactly what’s happening.

On Tuesday, National Taxpayer Advocate Erin Collins said at the AICPA & CIMA National Tax Conference that the IRS “has to deal with it,” “it” being the large backlog of ERC claims the agency is processing at a snail’s pace for fear of letting fraudulent claims slip through.

Said Journal of Accountancy of her comments at the conference:

The claims involve “a lot of good taxpayers in there that are entitled to this money,” she said. And the Taxpayer Advocate Service, which Collins heads, can get involved when a businessperson has a hardship, she said, such as a client who needs to pay their rent or car payment or needs money for food.

“We get a lot of people reaching out to us and saying, ‘I mortgaged my home because I thought I was going to get this ERC money so I could keep my business afloat. I need to pay this off. The interest is killing me.’ Or ‘I paid my employees out of my assets to keep them on the roll. I need this money back.’ I’ve had people saying they’re possibly going to shut down. They’re going to have these challenges so we are trying to help those individuals, and it is not as fast as I would like.”

ERC was initially created at the onset of the COVID-19 pandemic to encourage businesses affected by lockdowns to retain staff on payroll. Recent IRS estimates say there could be $9 billion of fraud related to various COVID measures, including but not limited to ERC. Tax pros we’ve spoken to say it’s likely a lot higher.

Shortly after the package of relief measures under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) rolled out, a cottage industry of aggressive promoters with the work ethic of extended car warranty salesmen popped up. The promoters would take a fee based on the expected ERC payment — sometimes as much as 40% — while the business owner waited around for the actual payment. As we know, many of those business owners are still waiting. A bunch of them can be found on Reddit at r/ERCchat.

Here’s CPA Larry Gray explaining more about this scheme that caused the IRS to issue a moratorium on processing ERC claims in 2023:

In September, U.S. Senators Mitt Romney (R-UT), Thom Tillis (R-NC), and Joe Manchin (I-WV) introduced the Employee Retention Tax Credit Repeal Act, bipartisan legislation that would disallow the processing of Employee Retention Credit claims filed after January 31, 2024. Estimates suggest the credit has added $230 billion to the deficit through Fiscal Year 2023 and could eventually cost up to $550 billion. The IRS’ own analysis of more than one million backlogged ERC claims shows that only 10-20% are low risk — meaning likely legitimate — while 60-70% have unacceptable risk and 10-20% are in the high risk category. The agency said the total value of these analyzed claims is over $86 billion.

“This is not a five-minute exercise,” acknowledged Collins in her comments to the AICPA & CIMA National Tax Conference. “We’ve made various suggestions and recommendations [to the IRS], but, as you can see, they aren’t moving fast.”

Taxpayer advocate: Unprocessed ERC claims could total 1 million at year end [Journal of Accountancy]