Back in October, we touched on the question of “What’s taking so long to get my ERC Refund?”. At that time, the backlog of unprocessed filings was around 200,000. Here we are over 7 months later, and that backlog has ballooned to almost 1,000,000! IRS Commissioner Werfel has committed to increasing the number of claims processed per week from 20,000 to 50,000 to try and work through this backlog, but there hasn’t been definitive process made up to this point.
On May 4, 2023, senator Kirsten Gillibrand wrote to Commissioner Werfel expressing concerns about the delays in processing of these requests. Per my own recent conversations with the IRS, they have begun to acknowledge that the spirit of the laws that made this credit available were to help businesses that were struggling from Covid-19 and the related disruptions to their businesses. However, the extreme delays in processing have only put further pressure on many businesses that expected a lifeline only to be greeted with a sometimes years long process to get the credits they’re eligible for. So what gives?
If you’re a business owner you’ve likely been inundated with advertisements from what the IRS calls “ERC Mills”. These companies push aggressive claims that every business qualifies for a “business credit” of up to $26,000 per employee. We’ve seen ads that spoof official IRS notices claiming to be from the “Department of the Employee Retention Credit”, which doesn’t exist. The IRS has acknowledged that the number of requests for refunds that are extremely aggressive to downright fraudulent has increased significantly. There is unfortunately not a great way to weed out whether a claim is legitimate without a full-blown audit.
As we approach the first filing deadline (2020 quarters are due April 15, 2024), we would expect these ERC Mills to become more aggressive. We recently came across the first that is charging 30% of the total credit in fees – now double the 15% that most were charging early on! We continue to caution any business that is thinking of using one of these companies to weigh the potential risks that you’re taking. While these audits are in the early stages, we have heard anecdotally that the audits are harsh and relying on an ERC Mill to determine your eligibility without proper due diligence is unlikely to shield you from IRS penalties in the case of an audit.
Based on some Information Document Requests (IDR) that the IRS has sent regarding ERC, the IRS is requiring proof of eligibility, calculations and no “double-dipping” between PPP and ERC, to name a few. If you’ve used an ERC-only company, it would be prudent to request this information to be prepared should an audit occur in the future. We have outlined some of the most common requests in relation to ERC audits in a recent blog posting. We would not be surprised to see the audit statute extended, especially in the case of fraudulent filings. If you have any questions related to a filing you’ve made or a credit you’re waiting for, please contact us.