IRS Facing a Backlog of 1 Million+ ERTC Claims

The Internal Revenue Service (IRS) still has to process more than one million Employee Retention Tax Credit (ERTC) claims, a backlog that suggests how time consuming it’s been for the agency to determine which claims are and aren’t legitimate.

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

A recent report to Congress by the National Taxpayer Advocate said the IRS is between a rock and a hard place in handling ERTC claims. “If it pays claims quickly without adequate review, it could pay billions of dollars to nonqualifying persons,” the report states. “If it takes the time to review claims carefully, eligible employers will experience significant delays in receiving the credit, and in extreme cases, employers who need the funds immediately could go out of business.”

Last month, the IRS said it was rejecting more than 20,000 ERTC claims from businesses and nonprofits that either didn’t exist or didn’t qualify for the credit. “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, adding that “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.”