If your business filed for the Employee Retention Credit (ERC) but has not received the refund yet, you are not alone.
The IRS instituted a moratorium on processing ERC returns filed after September 15, 2023, and returns filed prior are being processed at a very slow pace.
Some businesses have been waiting years for their ERC claims to be processed. Yes, years!
These significant delays are causing real financial hardship for companies that were counting on the ERC refunds to help them recover from the pandemic’s economic impact and continue paying their employees.
Read on to learn about the ERC refund conundrum and what your options are, including filing a taxpayer advocate request, making a Congressional constituent request, or suing the IRS for your refund.
ERC Refunds: From Lifeline to Logjam
The ERC is a refundable tax credit that was created to encourage businesses to keep employees on their payroll during the COVID-19 pandemic.
Eligible employers could claim the credit based on wages paid to employees during periods when their business was fully or partially suspended due to government orders or had a significant decline in gross receipts.
Unfortunately, ERC abuse ran rampant as aggressive and misleading marketing campaigns convinced many businesses to claim the ERC credit when they were not eligible for it. In July 2023 the IRS announced a slowdown in claims processing due to the complexity of the process and a surge in suspect claims.
Shortly thereafter, in mid-September 2023, the IRS announced a complete moratorium on processing new ERC claims. The IRS has still not announced a clear date for lifting the moratorium, although in a March 2024 press release the agency signaled it could be “late spring.”
And Now … ERC Limbo
Meanwhile, although the moratorium aimed to combat fraudulent filings, the blanket pause also unfairly impacted employers with legitimate claims, leaving them in limbo awaiting much-needed funds.
Estimates suggest there could be a million unprocessed ERC claims awaiting IRS review. And despite the moratorium, the IRS is still receiving an average of 20,000 new applications each week, further exacerbating the backlog.
Recently, IRS Commissioner Daniel Werfel has been quoted suggesting that “19 out of every 20 claims is suspect” and that winnowing out the eligible claims is “like finding a needle in a haystack.”
Companies experiencing financial hardship due to the delayed refunds have options to try to expedite the process.
Here are three potential avenues to pursue:
- Taxpayer Advocate Requests
- Congressional Constituent Requests
- Litigation: Suing the IRS
Taxpayer Advocate Requests
One administrative option is to file a Taxpayer Advocate Service request.
In your request, explain the financial hardship your business is facing because of the delayed ERC refund. Provide details on why you qualify for the ERC and are seeking relief through Taxpayer Advocate Service.
Taxpayer Advocates have been looking at these cases and working to expedite processing of claims they receive. Speaking to Congress, IRS Commissioner Werfel acknowledged that Taxpayer Advocate Service requests are one of the few ways ERC refunds are still being processed during the moratorium.
So, submitting a request through the Taxpayer Advocate Service may be a good first step to try to get your ERC refund faster.
Congressional Constituent Requests
Another route is to contact your Congressional representative and ask them to intervene on your behalf.
IRS Commissioner Werfel also noted that some ERC refunds have been processed after inquiries from members of Congress on behalf of their constituents.
Reach out to the senators and representatives from your state and district. Explain your situation and see if their staff can help get your ERC refund claim looked at and processed.
Having support from your elected officials may help elevate your case within the IRS.
Litigation: Suing the IRS
If administrative options fail, employers who have been waiting at least six months can file a lawsuit against the IRS to compel them to process the refund.
The option to sue is based on an Internal Revenue Code statute that allows taxpayers to take the IRS to court over refund claims if the agency has not acted within six months of the filing date.
To avoid protracted litigation, employers should only file suit if they are certain of their ERC eligibility and refund amount owed and can provide documentation to establish their qualification.
Those with clear eligibility, such as a decline in gross receipts or those who fell under a legitimate government suspension order, will generally be best positioned to have their case settled without extensive discovery.
When pursuing the judicial path, you have some litigation strategies to consider. Refund suits can be brought in either the U.S. District Court where your business is located or the U.S. Court of Federal Claims.
The U.S. Court of Federal Claims may be a better venue, as it exclusively hears cases against the federal government, so its procedures may be streamlined.
Plaintiffs can also consider making a “qualified offer” to settle with the ERC — even if the offer is for the full amount owed. If the IRS rejects the offer and you prevail in court, you may be able to recover some legal fees. This is typically the only path to recovering attorney fees when suing the IRS.
The Bottom Line for Employers Caught in the ERC Backlog
The ERC has provided vital relief to many employers, but the refund delays are causing real financial pain. If you’re one of the many employers caught in the ERC refund backlog, it may be time to take legal action to get the funds you’re owed.
Tax attorney Alyssa Maloof Whatley and her team have been closely tracking the ERC scam situation and related legal developments.
They can evaluate your company’s ERC claim, determine the best strategy for expediting your refund, and guide you through the process of filing a persuasive case.
Don’t wait indefinitely for the IRS to act.
Contact the Law Offices of Alyssa Maloof Whatley now.
