The Internal Revenue Service (IRS) has started sending out denial letters related to the employee retention credit (ERC). The IRS has sent out 28,000 letters to businesses disallowing ERC claims and they have an estimated $5 billion of improper payments prevented. The letters lay out the reasons for the denial of an ERC claim including the top 5 reasons below:
Essential businesses during the pandemic that could fully operate and did not have a decline in gross receipts.
Business unable to support how a government order fully or partially suspended business operations.
Business reporting family members’ wages as qualified wages.
Business using wages already used for PPP loan forgiveness.
Large employers claiming wages for employees who provided services.
If you are a business that received this letter and you clearly were eligible and satisfied the qualifications for the ERC in the quarter(s) denied, then it is recommended you pursue an appeal process. Businesses can elect to go through an appeal process to provide the back-up support for the ERC claims and challenge the position of the IRS. It is important that you are responsive to these letters and respond timely because there is a very short 30-day appeal deadline from the date on the letter received.
It is essential that you address this immediately and work with the third-party provider who assisted with your ERC claim.
The appeals process is different depending on the size of the credit. Credit claims under $25,000 per quarter follow one process and credit claims above $25,000 per quarter have a different process.
If you did not meet the 30-day response time by filing an appeal, then there is a more costly and time-consuming process to file a suit for a 2-year period from the date of the letter with the United States District Court. This is not the preferred method of appeals. The details on this process are explained on the letters sent by the IRS.
Some Good News on ERC claims (post moratorium), refunds may be coming soon!
In better news relating to the ERC, the IRS announced on August 8, 2024, that they will soon begin processing claims filed between September 14, 2023 and January 31, 2024. The IRS will be processing and issuing payments for about 50,000 valid ERC claims. It is anticipated IRS payments for these claims will be issued in September with additional payments to be issued in subsequent weeks. The IRS does anticipate another large block of claims being paid later in the fall. It is possible that some quarters may be paid while other quarters are being reviewed by the IRS.
Feel free to reach out to your Wegner CPA’s advisors if you have any questions/comments on any letters received.
