ERC Refund Claim Delays Continue; VDP Ends Nov. 22

The IRS recently provided information to the American Institute of Certified Public Accountants for taxpayers that have been waiting – some for years – for ERC refunds. Following are highlights of the IRS’ message:

• Consistent with a recent announcement, the IRS is processing around 400,000 ERC claims and many of those taxpayers should expect to receive refunds.
• ERC claims filed after Jan. 31, 2024, are not being processed and no timeline has been released for when they will be processed.
• Currently, IRS phone customer service representatives have little helpful information regarding the status of outstanding ERC refund claims.

Crowe observation

The Taxpayer Advocate Service, a usually reliable avenue to resolve issues involving delayed refunds, has not been a good option for moving stalled ERC refund claims.

• Employers claiming the ERC are required to reduce previously claimed deductions for wages paid on income tax returns for the corresponding tax period and pay any additional income tax due. Guidance is needed about how to amend income tax returns and pay additional income tax for closed years. Though the IRS is working on guidance, it provided no date for when that guidance would be issued.
• The IRS sent thousands of claim disallowance notices (Letter 105-C) and set up a website to provide guidance on how taxpayers that disagree with the notice should respond. Regardless of whether the notice includes a right to go to the Independent Office of Appeals (Appeals), all taxpayers have a right to request Appeals consideration of their ERC claim. It is important to note that taxpayers have two years from the date of the notice of claim disallowance to file a refund suit in court and that going to Appeals does not extend the two-year period.
• For taxpayers having second thoughts about their ERC claim, withdrawal remains an option if the taxpayer has not received the refund or, if the refund has been received by check, the taxpayer has not cashed the check. Taxpayers that are ineligible for withdrawal might be eligible for the VDP initiative; however, VDP ends Nov. 22 (except for third-party payers that have until the end of the year), and the IRS has no plans to extend that date.
• If the IRS paid the ERC claim and now believes that the claim is invalid, it can make an assessment to claw back the refund. For the third quarter of 2021 only, the IRS has five years to make that assessment rather than the typical three years. The IRS also has the option to file an erroneous refund suit to claw back the refund.
• The IRS has established a special consolidated claims process for third-party payers.

Looking ahead

Though the IRS has signaled that it is working through its inventory of ERC refund claims filed before Jan. 31, 2024, many taxpayers will not hear back from the IRS and will have to continue to wait. For taxpayers that are still waiting for an IRS response, no good options exist currently for getting more information on the status of their claim. Taxpayers that receive a claim disallowance or a notice for repayment of an ERC claim that has been paid should work with their tax adviser to determine next steps. Taxpayers that have not received an ERC refund or claim disallowance and that are having second thoughts should work with their tax adviser to determine whether to withdraw their claim.