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Address ERC Backlog, Taxpayer Advocate Urges


Quotes from Darren Guillot, Former IRS Commissioner of the Small Business/Self Employed Division; alliantgroup National Director

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The IRS should substantially increase the number of employee retention credit claims it processes in order to help businesses with legitimate claims, National Taxpayer Advocate Erin Collins said.

“The IRS is between the proverbial rock and a hard place when it comes to ERC claims,” Collins said in a June 26 release announcing her midyear report to Congress. “If it pays out ERC claims without adequate review, improper payments may be in the tens of billions of dollars. If it declines to pay ERC claims or delays payments further, the very businesses for which Congress created the ERC will be harmed again.”

The release of the report follows an announcement that the IRS’s moratorium on processing new ERC claims will continue but that some claims received before the moratorium will be processed. IRS Commissioner Daniel Werfel said the IRS is concerned that ending the moratorium might unleash a marketing push by promoters that could lead to an influx of bad claims.

But the advocate’s report said that “the IRS must find a balance between fraud prevention and taxpayer service to ensure it preserves the taxpayer rights to finality and to challenge the IRS’s decision and be heard” (emphasis in original).

“The ERC’s complexity and the IRS’s focus on identifying incorrect claims means there are undoubtedly eligible business taxpayers with legitimate ERC claims who are experiencing lengthy delays,” the report said, adding that the agency hasn’t provided processing updates or a “mechanism for taxpayers to check their claim status online.”

The IRS should also “improve its process to identify legitimate ERC claims” and “be transparent by posting general updates on the ERC claims backlog and estimated processing timelines,” according to the report.

The IRS posted updates on the status of its backlog of tax returns during the COVID-19 pandemic.

The Taxpayer Advocate Service plans to monitor the IRS’s handling of ERC claims during fiscal 2025 by advocating for the continued practice of transparency, the timely processing of all claims, and the issuance of refunds on legitimate claims.

As part of those efforts, the report says TAS will “continue to refer ERC cases for the IRS to prioritize when the taxpayer has a significant hardship and qualifies for TAS assistance.”

TAS will work with the IRS to make sure it provides clear explanations and transparency when an ERC claim is denied, and Collins is expected to work with IRS leaders in the coming weeks to expedite the processing of eligible claims, including several thousand cases pending with TAS.

‘Unacceptable’ Wait Times

The IRS has asked taxpayers for patience while it carefully examines claims to avoid improper ERC payouts, but stakeholders are growing frustrated with the agency.

The national taxpayer advocate “has it exactly right — the IRS must prioritize processing of ERC claims where the claimant has a significant hardship,” former IRS Commissioner Charles Rettig told Tax Notes.

Rettig called it “unacceptable” for claims deemed by the IRS as low risk to have to wait until later this summer for payment.

Rettig pointed out that changes in ERC eligibility confused businesses that were simultaneously dealing with other issues during the period in which claims could be filed, such as complicated public health regulations, labor shortages, supply chain interruptions, and lack of business opportunities.

“The IRS must find a balance between fraud prevention and taxpayer service, without continuing to mostly ignore taxpayer service by failing to process eligible ERC claims,” Rettig said. “Every one of those businesses is important — many are struggling to survive.”

Darren Guillot of alliantgroup LP, which counsels its clients on their ERC claims, said it’s possible that some claims may have been miscalculated, but they shouldn’t be seen as fraudulent. These miscalculations can easily be rectified, according to Guillot, a former commissioner of the IRS Small Business/Self-Employed Division.

Darren Guillot | Former IRS Deputy Commissioner of the Small Business Division; Former Acting Commissioner Small Business Self Employed Division; alliantgroup National Director
Guillot said he is hopeful that the IRS is able to more efficiently process the pipeline of ERC claims to get the intended financial help to well-meaning businesses.

Justin Elanjian of Stout Risius Ross LLC agreed that there has been a lack of transparency as well as inconsistency and inaction from the IRS regarding the processing of claims.

Better communication about the status of the backlog and wait times “would be helpful as businesses are continuing to evaluate their options for an unprocessed claim,” Elanjian said.

“Many taxpayers don’t have this luxury of waiting in perpetuity for these refunds to process,” Elanjian added.

However, fully alleviating the concerns of businesses that await refunds could still be challenging.

Instituting a boost in processing and more transparency regarding claim status “may prove to be too little, too late if ERC claim processing times are not significantly shortened in the near future,” according to Mary E. Wood of Meadows, Collier, Reed, Cousins, Crouch & Ungerman LLP.

“Unfortunately, the massive amount of perceived fraudulent ERC claims has severely undercut the IRS’s efficiency in processing and paying legitimate claims,” Wood said.

Featured Leadership

Darren Guillot | Former IRS Deputy Commissioner of the Small Business Division; Former Acting Commissioner Small Business Self Employed Division; alliantgroup National Director

As an alliantgroup trusted tax advisor and consultant, Mr. Guillot helps small and medium-sized businesses navigate America’s tax system to secure incentives and credits that stimulate innovation and improve products and services. He also serves them as an expert resource resolving complex compliance and appellate controversies.

Darren recently retired from IRS after 36 years with the agency. From 2019 – 2023, he served as Former Commissioner of the IRS’ Small Business/Self Employed Division, overseeing all IRS domestic and international Collection Operations and its Operations Support functions.