In an opinion piece published in Fortune on July 17, former IRS commish Chuck Rettig recognizes that his former employer was wise to put a moratorium on processing fraud-plagued Employee Retention Credit (ERC) claims but says the IRS should process the less shady ones in the meantime. The work of identifying the risk level of individual claims has apparently already been done so at this point they know which bunch are most likely to be legit.
He writes:
Last month, the Internal Revenue Service (IRS) announced an extension of a pause on processing Employee Retention Credit (ERC) claims submitted after Sep. 14, 2023. The agency closely examined ERC claims in backlog and determined that 10-20% of claims were low-risk, 60-70% of claims had unacceptable risk, and 10-20% had high risk. I applaud the IRS’ prudent use of the increased funding from the Inflation Reduction Act to sift through invalid claims, identify low-risk claims, and perform a timely analysis of millions of ERC claims.
The IRS has said that it would “begin judiciously processing more” low-risk claims, with the first payments going out later in the summer. However, the already identified low-risk ERC claims, submitted by struggling small businesses, should be approved and paid now. Immediately approving and paying low-risk ERC applicants would greatly benefit the roughly 150,000-300,000 applicants who are still operating in a challenging economic environment.
In a June 20 news release, the IRS announced plans to deny tens of thousands in “improper high-risk” ERC claims following a detailed review of unprocessed claims. The IRS spent months digitizing information and analyzing data for more than one million ERC claims, the total of which was more than $86 billion.
Of the timeline for issuing payments for those claims deemed low risk the IRS said:
The IRS anticipates some of the first payments in [the low risk] group will go out later this summer. But the IRS emphasized these will go out at a dramatically slower pace than payments that went out during the pandemic period given the need for increased scrutiny.
As the additional IRS processing work begins at a measured pace, other claims will begin being paid later this summer following a final review. This additional review is needed because the submissions may have calculation errors made during the complex filings. For those claims with calculation errors, the amount claimed will be adjusted before payment.
The IRS also noted that generally the oldest claims will be worked first, and no claims submitted during the moratorium period will be processed at this time.
Just to make sure people who are waiting on ERC claims to be paid out are very, very clear on the timeline, the IRS then said:
The IRS cautioned taxpayers who filed ERC claims that the process will take time, and the agency warned that processing speeds will not return to levels that occurred last summer. Taxpayers with claims do not need to take any action at this point, and they should await further notification from the IRS. The agency emphasized those with ERC claims should not call IRS toll-free lines because additional information is generally not available on these claims as processing work continues.
“These complex claims take time, and the IRS remains deeply concerned about how many taxpayers have been misled and deluded by promoters into thinking they’re eligible for a big payday. The reality is many aren’t,” Werfel said. “People may think they are on safe ground, but many are simply not eligible under the law. The IRS continues to urge those with pending claims to use this period to review the guideline checklist on IRS.gov, talk to a legitimate tax professional rather than a promoter and use the special IRS withdrawal program when there’s an issue.”
In wrapping up his piece, Rettig said “It is true that the fog of war and the predatory schemes of some bad actors misled some small businesses into thinking they were eligible for ERC when they were not.”
“However, fighting fraud should not come at the expense of legitimate small businesses with claims pending at the IRS.”
The IRS is right to scrutinize pandemic-era employee retention credit claims—but legitimate filers can’t afford more delays [Ex-IRS Commissioner Chuck Rettig in Fortune]
The IRS study shows that upwards of 80% of the claims it has in house are probably bogus. Former Commissioner Rettig was in place until November 2022. ERTC took off after the mutual exclusivity with PPP was removed at the very end of 2020. There was tsunami of bogus claims from bogus mills during his tenure. Its a pretty safe bet that under his watch tens of Billions of dollars in bogus ERTC claims were paid out. Anyone paying any attention to this knew it.
He is the last person who should be weighing in on this. Its amazing he has the gall to issue this letter. Just amazing.
Come on, when did the IRS actually want to pay anybody? They use the term “probable” when they talk about fraud. Lets deal with actual data which the IRS does not seem to want to provide. So far they only have a few cases of fraud and millions of applications.
The original estimate for this credit was $55 billion. They have paid out almost $300billion with 1.4 million claims still in the queue. I have seen the calculations for a claim from one of the largest mills. It was a complete sham. A whistleblower working at one of the mills claimed 95% of the claims he filed were fraudulent. Mills were paying themselves a 25% commission which flies in the face of Cir. 230. There was a “bums’ rush” of claims and billions upon billions of fraudulent claims were paid with no oversight or vetting.
From the point where the exclusivity with PPP was removed, this became a complete fiasco and people belong in jail.
Deal with the fraudsters. Legitimate eligible businesses needed help! The IRS failed to provide clarity on several issues for over a year in some cases, stopping many otherwise eligible small businesses to fear applying for a credit they could be eligible for. Many accountants refused to advise them due to the constant changes and lack of clarity. Add to that the law allowed an “advance” through the 4th quarter of 2021 which they yanked literally in the middle of the 3rd quarter. I and some of my colleagues have had claims pending since 2021/2022. Contacting the IRS with questions regarding the status is futile. Not only that it is assumed filing a claim makes you a criminal.