Due to delays at the Internal Revenue Service, businesses and organizations are still waiting for the pandemic relief that was promised during the COVID-19 outbreak. Many of them need this money to keep their doors open and employees paid. According to a report issued late last month, the IRS is behind in processing claims for Sick and Family leave Credits and Employee Retention Tax Credit (“ERTC”) for as much as 12 months, while other claims for such things as Social Security Tax Deferral have been delayed for some 16 months.
The Treasury Inspector General for Tax “Administration (TIGTA) has attributed this delay to a “lack of updated programming/procedural guidance” & “a lack of training, erroneously suspended claims, and a lack of prioritization of claims.”
According to the Report, “As of February 1, 2022, there were 447,435 Forms 941-X waiting to be processed,” (Form 941-X is the form filed to claim payroll tax refunds including those for the ERTC) the report states. “Over 90 percent (402,814) of these Forms 941-X were over-aged, (i.e. not been processed within 45 calendar days in accordance with IRS policy). In addition, 60,885 (13.6 percent of the Forms 941-X were not processed within 180 calendar days.” The TIGTA described the over-aged inventory as “an ongoing challenge for the IRS.” Additionally, the IRS watchdog found claims that should have been reviewed but were not resulting “in $45 million in employer tax credits being allowed” when they otherwise might not have been had they been properly subject to reviews. The TIGTA recommends that the IRS develop a plan to prioritize processing backlogged claims, update the examination referral process, and update training for IRS employees regarding referrals. The IRS did not agree with the latter recommendations, but did all others stated in the report. “Management stated they completed subsequent review of completed Form 941-X claims and determined no additional training was needed,” the report states. “However, the IRS’ subsequent reviews do not address the concerns identified in our report. Accounts Management employees cited unclear guidance and training as to why 73 percent of claims were not referred when required.”
On the ground, we are seeing delays in claims that average between 20-24 weeks in some cases at the earliest to over a year for other cases. This is only our experience however and does not speak for the program as a whole. At this point for any new amended returns we have been advising clients to expect closer to the one-year time range. Many taxpayers are receiving various notices from the IRS in this matter, either in the form of “we need additional time” or indicating a claim has been processed and an overpayment is due, which should be mailed in 3-5 weeks.
With all the ERTC filings and concerns about abuse in claims filings, there is word that the IRS is retraining and retooling staff to be able to perform audits of ERTC filings. Notable sources have indicated that the IRS is pulling up to 90% of their exam staff to focus on audits of ERTC and the IRS has confirmed on a statement on September 20 that they are training large groups of auditors to conduct examinations on these claims. The IRS is apparently aware of firms charging large contingent fees and conducting aggressive campaigns to target employers and are making aggressive claims which may not be 100% accurate on eligibility.
Employers who filed claims should make sure that they have all the appropriate support including:
- Proper payroll records;
- Analysis to support that any ERTC filings do not claim salaries paid through another program such as PPP;
- Support that business owners are properly excluded from ERTC filings; and
- Support for revenue declines or restriction of business attributable to government orders
As always, if you have any questions, please feel free to connect with us.
Edward McWilliams, CPA
Ed is a Partner in the firm’s tax and business advisory practice focusing on providing services to middle market private companies across different industries as well as to early stage startups. Ed has over a decade of experience providing tax and business consulting services to these companies of different sizes and across different industries, bringing a broad and diverse knowledge base and strategic solutions to the many complex issues that businesses face.