IRS to Reject 20K+ Disallowed ERTC Claims

The Internal Revenue Service (IRS) announced this week that it will reject more than 20,000 Employee Retention Tax Credit (ERTC) claims from businesses and nonprofits that either didn’t exist or didn’t qualify for the credit.

The ERTC was a lifeline to small businesses and nonprofit groups struggling to keep their employees on their payrolls during the COVID-19 pandemic. In September, IRS Commissioner Danny Werfel ordered the agency to immediately stop processing new ERTC claims due to a “surge of questionable claims.”

This week, Werfel said the IRS has shifted its focus to reviewing ERTC claims for compliance concerns, with thousands of ERTC claims referred for audit. All of the 20,000+ rejection letters that went out this week reflected the agency’s determination that the entity did not exist or did not have employees for the time period when the credit was claimed.

“With the aggressive marketing we saw with this credit, it’s not surprising that we’re seeing claims that clearly fall outside of the legal requirements,” Werfel said. “The action we are taking today is part of an initial set of steps in our compliance work in this area, and more letters will be going out in the near future, including both disallowance letters and letters seeking the return of funds erroneously claimed and received.”