The Taxman is calling...are you ready to answer?
Legitimate Employee Retention Credit Claims Held in Limbo!
It is hard to believe we are in 2025 and the Employee Retention Credit (ERC) is still a hot topic. Unfortunately, it appears to be more of the same. The National Taxpayer Advocate issued its 2024 report to Congress, stating that delays continue at the IRS in processing the 1.2 million existing claims. It is also expected that an additional 500,000 claims will be filed in 2025 (deadline for 2021 ERC claims is April 15, 2025). The IRS has not provided any details on the plan for processing of claims and the issuance of refunds. Combatting fraud is understandable, but legitimate claims are being held up for companies in need of the funds for operations. Additionally, the denial letters that were issued were fraught with errors and audit-like information requests have circumvented standard protections afforded to taxpayers. The full report can be accessed here: https://www.taxpayeradvocate.irs.gov/reports/2024-annual-report-to-congress/
The Employee Retention Credit has been mishandled from the very beginning. Guidance from the IRS that could be relied upon was late in coming (remember that the FAQs issued in 2020 stated that they could not be used as authority in a court of law). Guardrails could have been established with the employment tax filings by requiring disclosure of the basis for qualification as an eligible employer (gross receipts, governmental order, or Recovery Start-up Business). Reporting requirements could have been implemented for claims over a certain amount as they used with the forgiveness of the PPP loans. There were so many things they could have done but failed to do so. The former IRS Commissioner, Danny Werfel, inherited a mess, but his well-meaning plan to reduce the fraudulent claims has hurt honest, eligible taxpayers.
Can my Employee Retention Credit Claim be Expedited?
Before taking any action in an attempt to expedite the processing and payment of an ERC claim, call the IRS at (800) 829-1954 to inquire about the status of your claim. This will allow you to better choose your course of action.
There are a number of companies stating that they are able to expedite your unpaid Employee Retention Credit claim. Of course, for a fee. Don't fall for these claims by the fly-by-night opportunistic scammers. Rather, there are two legitimate options.
Taxpayer Advocate Service Option
The Taxpayer Advocate Service operates within the Internal Revenue Service as an independent office. When a taxpayer is unable to use normal IRS procedures or, in the case of the ERC, the inaction by the IRS is causing a hardship, the taxpayer can file Form 911, Request for Taxpayer Advocate Assistance to request assistance from the Taxpayer Advocate Service to work with the IRS to expedite the refund claim.
File a Refund Suit in Federal Court
If the IRS has not acted upon the Employee Retention Credit refund claim within six months, the taxpayer has the option to file a lawsuit against the IRS (a taxpayer may also file suit for a disallowed ERC claim).
Considering the potential professional fees incurred, this is the more costly approach. However, the lawsuit takes the claim out of the normal IRS administrative channels and allows the court to evaluate the validity of the claim. Lawsuits generally elevate the claim at the IRS, accelerating resolution of an otherwise stalled ERC claim.
My Employee Retention Credit Claim was Denied...Now What?
Don't panic.
The IRS has issued blanket denial letters claiming that the employer did not qualify because the employer did not meet the Significant Decline in Gross Receipts Test or the Governmental Orders Test. Reality is, the IRS does not possess information to make such determination. Frankly, these letters should have been worded differently. The IRS should have requested information supporting the claim. Rather, the IRS denial was issued to intimidate taxpayers. The tactic was, to say the least, dirty. Many legitimate claims were denied and timid taxpayers opted not to fight for what is rightfully theirs. The focus should have been directed to fraudulent claims and claims, in good faith, made in error.
If the claim was denied, taxpayers should first go to their service provider that prepared the credit. Reputable service providers should stand behind their work and assist the taxpayer in challenging the denial. Unfortunately, many of the companies offering Employee Retention Credit services closed shop when the IRS put a moratorium on processing claims in September 2023.
Otherwise, work with your CPA or attorney to address the denial letter. As mentioned before, you can file a lawsuit for a disallowed ERC claim. But prior to considering a lawsuit, respond to the denial letter and attempt to resolve it without incurring the cost of filing suit.
If your CPA prefers not to be involved with the Employee Retention Credit (which has been very common), MPowered Incentives Group is here to help. The process is simple. We will evaluate your initial claim to confirm qualification. If your claim is valid, we will respond with the required information supporting your claim. If the claim is not valid, we will help address the next steps. Follow this link to schedule time to discuss your options https://mpoweredincentives.com/.
