06/27/2024

The IRS Signals it Will Not Honor Bogus ETRC Claims

This could negatively impact nonprofits' honest claims

Last week, the Internal Revenue Service (IRS) signaled that a large majority of outstanding Employee Retention Tax Credit (ERTC) claims appear illegitimate and will not be processed.

Despite a strong economy, businesses are still claiming the credit at a rate of about 17,000 per week, which IRS Commissioner Danny Werfel attributed to exploitative marketing pushing the credit as a lifeline.

"Last year, promoters intensified their marketing, bombarding the airwaves with ads," Werfel said last week. "You couldn’t turn on the TV or radio without coming across an ERC ad. The program turned into a gold rush for promoters."

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, Werfel ordered the agency to immediately stop processing new ERTC claims due to a"surge of questionable claims."

Recently, the National Taxpayer Advocate (NTA) agreed that the continuous wave of ERTC claims flooding the IRS has put the agency "between the proverbial rock and a hard place."

"If it pays out ERC claims without adequate review, improper payments may be in the tens of billions of dollars," said Taxpayer Advocate Erin Collins in a midyear report to Congress. "If it declines to pay ERC claims or delays payments further, the very businesses for which Congress created the ERC will be harmed again."

This article was provided to OSAP by ASAE's Power of Associations and Inroads.