IRS Commissioner Announces ERC Claim Processing Around the Corner: What Else Did We Learn?

Each year, I enjoy participating in the ABA Tax Section’s Criminal Tax Fraud and Tax Controversy Conference in Las Vegas. (Just look at how happy I look in the picture below.) 2024 was no different.

This year, I had the privilege of hearing what sounded like it could be a monumental announcement by the IRS Commissioner, Danny Werfel. As mentioned by Anthony Daddino here, Werfel announced that the IRS had plans to process around 500,000 ERC claims by the end of 2024. The total value of those claims, per Werfel, is around $10 billion. In addition, Werfel announced that another 500,000 – 600,000 claims were “teed up” for approval next year.

This is welcome news. Many taxpayers have been waiting for the IRS to act for years. But what does it mean when the Commissioner says that claims will be processed? “Processed” could very well mean that claims will be refunded to businesses. On the other hand, “processed” could mean that the IRS will review the claims and deny them.

Based on comments made by the IRS relating to ERC, the IRS and practitioners are still not seeing completely eye-to-eye on what makes a claim valid or invalid. For example, if a business is negatively impacted by government orders in effect outside the jurisdiction of its primary place of business, would the IRS and practitioners agree that the business qualifies for the ERC? That remains to be seen. In my view, whether the IRS and practitioners could eventually agree on the validity of such an ERC claim is a separate issue from how the IRS is likely to initially process the claim.

In his comments in Las Vegas, Werfel readily acknowledged that in summer 2024, the IRS relied on algorithms to deny 20,000 ERC claims. Werfel further acknowledged that based on practitioner feedback, the IRS learned that “10%-20%” of those disallowed claims were in fact valid claims. The IRS has now tweaked its algorithms based on the summer 2024 practitioner feedback, but it remains likely that the IRS will deny valid claims as it continues its “processing.” Given that the IRS is relying on algorithmic processing, the IRS is likely to use broad eligibility criteria that will unfortunately reject valid claims.

To that end, in the coming months, I estimate that there will be a material number of claims denied that arguably should not be denied. Businesses should begin preparing now to determine how they should proceed in such circumstances. While the IRS has announced a longer period (two years) to challenge an ERC claim with IRS Appeals, there are strong reasons for businesses to proceed as quickly as possible. Claims may also be selected for audit, which presents another set of considerations.

If you have questions about this article, any ERC matter, or any civil or criminal tax issue, please contact me at 214-749-2417 or jglassman@meadowscollier.com.