Employee Retention Credit Refund Processing Delays Continue

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The Employee Retention Credit (ERC) continues to be a trending tax topic as we approach the end of 2022, as many businesses that took advantage of this lucrative credit are still waiting to see their refund in action. With the high demand for this credit opportunity, the Internal Revenue Service (IRS) continues to struggle with processing the significant amount of credit refunds being submitted in a timely manner. According to an August 2022 report from the Treasury Inspector General for Tax Administration (TIGTA), there are several factors impacting the ongoing backlog of unprocessed refund payments, such as the IRS’s process for applying the credit retroactively and deficiencies in controls to prevent fraudulent claims. The report also revealed that the IRS did not begin processing amended returns to claim the ERC for 12 months after the Coronavirus Aid, Relief, and Economic Security Act was enacted due to the lack of updated programming and procedural guidance. As of Nov. 30, 2022, the IRS reported a total inventory of unprocessed Forms 941-X at approximately 303,000. The Form 941-X is a paper form employers had to file to claim the credit retroactively, and the inundation of paper forms have fallen significantly behind in processing these documents within the IRS. Additionally, the IRS is also reviewing large ERC credit claims twice before issuing them to minimize and reduce fraudulent claims, based on recommendations from TIGTA. Employers are currently unable to track their refund status with the IRS. However, many taxpayers are reportedly waiting 10-12 months for their ERC refunds. If you submitted a Form 941-X to claim the ERC and still have not received your refund, the IRS advises not to file a second return, as it will likely result in an even longer delay. Taxpayers are also advised by the IRS to not contact them about the status of their refund, as callers continue to experience lengthy phone hold times and often told the refund is untraceable once they speak to a representative.

Beware of Suspicious Claims

Due to the popularity of the ERC credit, many third-party companies have been created that guarantee employers large refunds for a high contingent fee or large upfront fee. In many cases, these third parties are taking improper positions related to taxpayer eligibility for and computation of the credit. Employers should beware of these companies promising large refunds, as the IRS intends to impose large penalty fees for fraudulent claims. Taxpayers are always responsible for the information reported on their tax returns, and improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest. To learn more about the credit and whether you qualify, we encourage you to read our dedicated ERC blog post. You may also view our step-by-step flowchart to help you determine your eligibility in 2020 and 2021. If you are still waiting for your refund or interested in exploring this ERC credit opportunity, we encourage you to work with your business tax advisor like those at Doeren Mayhew. Contact us today to obtain ERC advisory services or for any additional tax-related needs.

Barbara Ashorn
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Barbara Ashorn is a Principal at Doeren Mayhew with over 20 years of experience in public accounting.

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