In March 2020, to help businesses impacted by the Covid pandemic, the CARES Act introduced three new employer tax credits: the Sick Leave Credit, the Family Leave Credit, and the Employee Retention Credit. The Employee Retention Credit (ERC) was eventually expanded and extended to increase the credit amount and the life of the credit. Many companies quickly claimed the ERC and, as a refundable credit, eagerly awaited the promised refund.

But they may still be awaiting that refund. A recent report by the Department of Treasury noted that an internal investigation showed that over 440,000 amended payroll tax returns were awaiting processing earlier this year. Over 90% of that population was considered overdue as they had been unprocessed for more than 45 days, with more than 13% or 60,885 being more than six months old.

Processing Delays

This severe backlog was created partly because the IRS got off to a slow start in processing amended payroll tax returns claiming the credit. It took almost 12 months from the time the credit was enacted before the IRS started processing returns. Part of this was due to shutdowns caused by the pandemic. The slow release of guidance and procedures accounted for additional delays. And changes introduced by subsequent legislation resulted in further delays. However, even with that, the Treasury Department notes that the delay was excessive and unjustified.

As a result, businesses that have filed an amended return and are awaiting the refund may still be waiting for some time as the IRS continues to work through the backlog.

Lack of Examination of Returns

Another finding by the Department of Treasury is that the IRS is failing to identify and refer certain returns for examination. If a return meets specific criteria, it should be referred to the examination team for a closer look and possibly a full audit. This ensures fraudulent claims are identified before a refund is issued. Employees who were interviewed either simply ‘forgot’ to refer cases, were unclear about the criteria for making a referral because of vague guidance and training, or were confused because the direction constantly changed.

While this might seem like good news for taxpayers receiving refunds, it is likely just a delay resulting in a more costly remedy. If an amended return results in a refund that is later audited and found to be incorrect, there will be additional penalties and interest that would not have been assessed if the refund was never paid in the first place.

If you are having issues with your ERC claim or would like to learn more about whether you qualify for ERC, contact us today to set up a time to talk.