On June 20, 2024, the IRS announced that its moratorium on processing new Employee Retention Credit (ERC) claims will continue indefinitely. The processing moratorium commenced with all claims filed after Sept. 14, 2023, and was envisioned at the time as a temporary measure to allow the IRS to combat fraud and improper claims within the ERC program.

In its announcement, the IRS also provided that it will begin “judiciously processing” “between 10% and 20%” of claims originally submitted before Sept. 14, 2023, that have “low risk” and that “some of the first payments in this group will go out later this summer.” Meanwhile, the IRS stated that it found between 60% and 70% of previously filed claims have an “unacceptable level of risk,” which will necessitate “additional analysis to gather more information with a goal of improving the agency’s compliance review, speeding the resolution of valid claims while protecting against improper payments.” The IRS did not share its methodology for determining risk levels, which is puzzling given that the amended Form 941 provides no information to the IRS on either eligibility for the credit or how amounts were calculated. The IRS also reminded taxpayers about the availability of an ongoing program to withdraw an ERC claim that a taxpayer believes is invalid in order to avoid compliance and penalty issues.

Although the news that the IRS will begin processing a small percentage of pre-Sept. 14 claims is a positive development, it overshadowed the announcement that the processing moratorium will continue indefinitely. Taxpayers with legitimate ERC claims are severely disadvantaged simply because their claims were submitted on or after Sept. 14, 2023, albeit well within the statute of limitations for filing claims. What is more, the IRS will not answer any questions about the status of existing claims, leaving taxpayers in the dark about whether or not, much less when they will receive their refunds.

In the meantime, taxpayers are left wondering if there is any solution (such as a refund lawsuit) to getting an ERC claim paid.

Our Role at CBIZ

Because CBIZ cannot render legal advice, it is imperative that you speak with your legal counsel about this topic before making any decisions. To be clear, CBIZ is not advising or recommending that you file — or refrain from filing — a refund lawsuit.

Commentary from External Sources

A recent article in Forbes discusses some of the pros and cons of suing the United States for a tax refund (the United States is the proper defendant in a refund lawsuit, not the Internal Revenue Service). Included in that article are some of the legal prerequisites and issues, including:

• The IRS has no legal obligation to review an amended return requesting a refund (“claim for refund”).
• If the IRS does not act upon a claim for refund within six months of the date the claim for refund was filed, or if the claim is disallowed, then the taxpayer may sue to obtain the refund in federal district court or the Court of Federal Claims (“Claims Court”).
• If the IRS formally disallows the claim for refund, the taxpayer has two years from the date of any such disallowance to file a refund lawsuit.
• The taxpayer has no statute of limitations for bringing the refund lawsuit if the IRS has not acted to disallow the claim, meaning the taxpayer can wait to see if the claim will be processed by the IRS or file a lawsuit to immediately push the process forward (the latter method brings with it increased expenses of litigation, of course).

• Because of the requirement to amend the income tax return to remove the deduction for wages used to calculate the ERC, taxpayers should be vigilant in tracking the statutes of limitations for both the income tax return and the claim for refund and potential refund lawsuit.  

Takeaway

Our intention is to provide you with some of the fundamentals about certain legal options that may exist and that could potentially be pursued for a “stale” ERC claim (those filed more than six months ago and upon which the IRS has not acted).

Also, remember that an amended Form 941 provides no substantive information to the IRS that would allow the agency to analyze the bona fides of the refund claim. Particularly in instances where eligibility was determined using the drop in gross receipts methodology, it may be prudent to provide all of the information upon which the claim is based (e.g., the specific gross receipts data and employee data) early in the process developed and managed by your legal team.

If you are interested in learning more, it is imperative that you speak with your legal counsel to evaluate those options and whether they are appropriate in your circumstances. CBIZ cannot give legal advice, and therefore we are not recommending that you file — or refrain from filing — a refund lawsuit. That is a decision you must reach with your legal counsel.

Should you have other questions concerning these matters, please connect with us.

Copyright © 2024, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly traded and privately held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).