IRS Reopens Processing Some Covid-Era Claims, Pays Out More Cash

The IRS will start processing some of the pandemic-era tax credit claims that previously were put on pause.

Businesses that filed employee retention tax credit claims between Sept. 14, 2023 and Jan. 31, 2024 will start to see the IRS pay or deny their claims, the agency said Thursday. The IRS will start with the highest- and lowest-risk claims.

Senate Republicans blocked a bipartisan tax bill last week that would have moved up the end date of the ERC program to Jan. 31, 2024. While the bill’s ERC provisions are unlikely to become law this year, the measure influenced which claims the agency will start processing.

Processing claims filed before Jan. 31 “not only aligns where we were in processing and digitizing the paper inventory, it also preserves that date should that legislation go through,” IRS Commissioner Danny Werfel said in a press call Thursday.

Processing of new claims made after Sept. 14 was halted as the IRS grappled with a flood of claims and a third-party pop-up industry conning businesses and nonprofits into claiming or overclaiming the credit when they didn’t qualify.

Many taxpayers with eligible claims have waited for months to get what they are owed. The agency—which is seeing 17,000 claims on average per week, according to Werfel—also plans to issue payments for 50,000 ERC claims that are considered low-risk starting in September.

Those claims will be moved into the “pipeline for payment processing in the coming weeks,” the agency said in a news release. Another “large block” of low-risk payments are anticipated to go out in the fall, the IRS added.

The IRS also said it sent out about 28,000 disallowance letters that showed “high risk” of being incorrect, which is estimated to prevent $5 billion in improper payments.

But immediately upon receiving these letters, tax professionals were quick to point that some were received in error and also didn’t show all the options taxpayers have if they disagree, such as suing and going to the IRS Appeals Office. The IRS said it will work with taxpayers who were improperly denied.

The IRS said “early indications indicate errors are relatively isolated and that more than 90% of disallowance notices were validly issued” and that it will adjust filters for determining invalid claims following each wave of letters.

Based on feedback after letters are sent the IRS “will figure out what we need to do to scale or place our Appeals Office in a higher degree of readiness,” Werfel said, adding that the first wave of letters concern claims that are are “clearly ineligible” and that he doesn’t anticipate a mass of taxpayers going Appeals.

“We will learn,” he said.