Employee Retention Credits: Navigating the Reopened ERC Claims Process

Making sense of tax credits can be tricky, especially when rules change. This was made clear when the IRS stopped processing employee retention credit (ERC) claims, pressing pause on a valuable lifeline for many businesses during tough times.

However, the IRS is once again processing these credits — and now that they’ve resumed, things aren’t quite the same. More claims are being denied, and if your business is affected, you’ll need to act fast. With only 30 days to appeal a denial, it’s important to know the next steps should this happens to you.

Read on for more on ERC claims, what to watch for… and how we can help you navigate these changes.

Background on the ERC and the Pause in Claims Processing

The ERC was created to help businesses keep their doors open during the COVID-19 pandemic. First introduced via the CARES Act of 2020, this refundable tax credit could be used against payroll taxes. This provided a financial cushion when it was needed most.

However, as more businesses began file ERC claims, the IRS noticed a spike in improper claims. So the IRS decided to temporarily pause processing all such claims to review and refine their approach. This pause gave the IRS time to develop stricter guidelines and a more thorough review process, aiming to ensure that only eligible businesses receive the credit.

Now that the processing has resumed, businesses need to be aware of these changes and understand how they might affect their ERC claims.

The Impact of Increased Denial of ERC Claims

With the IRS back to processing ERC claims, it’s now taking a closer look at each claim. As a result, more claims are being denied.

This heightened scrutiny means that even small errors or misunderstandings about the rules can lead to a rejection. Common reasons for denials include misinterpreting eligibility criteria or claiming credits on wages that don’t qualify.

The Appeal Process for Denied ERC Claims

If your ERC claim is denied, don’t panic — but don’t delay either. You have just 30 days to appeal the decision, which means time is of the essence. The appeal process might seem daunting, but with the right approach, you can challenge the denial effectively.

1. Carefully review the denial letter to understand why your claim was rejected.
2. Gather all relevant documents that support your claim and make sure they’re organized and complete.
3. Submit your appeal within the 30-day window.

Seeking professional guidance during this process can make all the difference. This extra step ensures your appeal is strong and you stand the best chance of reversing the denial.

Monitoring for Denial Letters and Potential Issues

Staying on top of ERC claims doesn’t end once they’re submitted. With the IRS taking a closer look at these claims, it’s more important than ever to watch for any communication from them, especially denial letters. Missing a letter or delaying your response could jeopardize your ability to appeal, so vigilance is key.

Even if you haven’t received a denial letter, review your previous ERC claims to ensure everything is in order. Double-check your documentation and consider consulting with a tax professional to identify and address any potential issues before the IRS does.

You can also take part in the IRS’s ERC Voluntary Disclosure Program. We’ve seen aggressive service providers encourage ineligible businesses to claim this credit (even if the filer doesn’t believe they qualify). Or sometimes a simple misunderstanding of the requirements prompts someone to file for the credit — only to realize later that they’re not eligible.

The Voluntary Disclosure Program allows taxpayers who have made errors in claiming the credit (unintentionally or due to bad advice from a third party) to proactively correct claims before the IRS begins any enforcement. Taxpayers who participate in the program might be able to reduce or avoid some penalties that might be levied if the IRS found the error themselves.

The bottom line? Being proactive can help you avoid surprises and ensure your claims are processed smoothly.

The process for ERC claims has become more challenging, and businesses need to be ready. With the IRS tightening its review, more claims are being denied. If your claim is rejected, it’s important to act quickly since you have only 30 days to appeal. Staying alert and getting expert help can greatly improve your chances of success with ERC claims. Don’t wait until it’s too late.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.