Each year in January, the Taxpayer Advocate Service (TAS) presents its annual report to Congress, consisting of a summary of the ten most serious problems encountered by taxpayers each year. It may not be any surprise to those waiting for their Employee Retention Tax Credit (ERC) refund, but the most serious problems reported for this year are the IRS delays, inefficiencies and lack of transparency in their processing of these claims.
Created in 1996 by Congress, the TAS is an independent organization within the IRS; their job is to ensure that every taxpayer is treated fairly under the Taxpayer Bill of Rights. They help taxpayers resolve problems with the IRS, as well as addressing large-scale systemic issues affecting large groups of taxpayers. They produce and present two reports to Congress: The Annual Report, presented in January and an Objectives Report, delivered in June. These reports are delivered to the Senate Committee on Finance and the House Committee on Ways and Means, with no prior review or comment from the IRS.
The full Annual Report for 2024, where you can read about these most serious problems, can be found here.
The ERC was created in March 2020 as a lifeline for businesses and nonprofits negatively impacted by the COVID-19 pandemic. The rules for qualification loosened in December 2020, which opened up the ability for an exponential number of businesses to be eligible for funds. Those that filed early on have long received their funds, as the average days for processing claims in 2022 was only 72 days. But as time went on, businesses that may not have honestly qualified, bad actors and dubious promoters took advantage of the system and flooded the IRS with returns. In September 2023, the IRS came to this realization and put the breaks on processing. Over the course of the following 10 months, they only processed about 27,000 returns, yet their backlog was growing to over 1.2 million returns.
Very little information provided as to the specific status of processing for any return, and the fact that some returns were approaching two years since their original filing, brings us to today and the realization that this is a most serious problem. Not surprisingly, these delays, and the lack of transparency with the IRS, has led to an influx of TAS cases from taxpayers seeking assistance with their pending claims. For many, it is a lifeline for those businesses that honestly qualify.
The TAS is calling for the following recommendations to Congress to clear the backlog of unprocessed returns. They state that “it is about fulfilling a promise to the American businesses and communities” and they “must prioritize taxpayer needs, streamline claim processing, handle disputes fairly and promptly, and deliver the relief Congress intended,” adding “Businesses can’t wait any longer.” Amen.
The National Taxpayer Advocate recommends that the IRS:
- Provide transparent training and guidance: Ensure it provides internal subject matter training and guidance to all IRS employees working on processing, conducting an audit or in Appeals considering an ERC claim and post IRS training materials online on IRS.gov within 30 days of issuance to the employees.
- Expedite claim processing: Process all ERC claims, filed before January 31, 2024, by April 30, 2025 and claims pending, for over six months, by July 31, 2025. Processing includes paying the claim, denying the claim or notifying the taxpayer that the claim is under audit.
- Prioritize economic hardship cases: Process claims from businesses, in financial hardship first, and then process the remaining claims in the order received.
- Lift the moratorium: Resume processing post-January 31, 2024 claims and process future claims within six months of receipt.
- Enhance communication: Provide regular updates, on IRS.gov, on the processing of outstanding ERC claims, including specific anticipated timeframes.
- Provide clear disallowance explanation: Provide a detailed factual and legal explanation, in Letter 86C, as to why the ERC claim disallowance is being upheld and provide the taxpayer more time to submit additional information before referring the case to Appeals.
- Request supporting documentation proactively: When taxpayers have not been subject to an exam, issue a letter allowing taxpayers to send in documentation and seek an appeal, prior to the notice of claim disallowance being issued for the ERC.
- Track and extend statutes: In Appeals, track the two-year IRC § 6532 statute cases on ERC claims in inventory, and notify taxpayers of this pending statute expiration six months prior to the two-year deadline. Also, provide taxpayers an explanation of the impact of the expiration of the statutory period to file suit and the option of executing Form 907 to extend the statute.
- Offer Fast Track: Allow ERC taxpayers to utilize the Fast Track process.
- Enable direct deposit for replacement checks: Partner with the Bureau of the Fiscal Service (BFS) to provide taxpayers an option to elect to have funds deposited electronically, in lieu of receiving a replacement paper check.
With the new administration including a change in the Commissioner of the IRS, we will remain hopeful that these recommendations are implemented in the near future.
While we make every attempt to ensure the accuracy and reliability of the information provided in this document, the information is provided “as-is” without warranty of any kind. Romeo Chicco or PayMaster, Inc. does not accept any responsibility or liability for the accuracy, content, completeness, legality or reliability of the information contained. Consult with your CPA, Attorney, and/or HR Professional as federal, state, and local laws change frequently.
