The Employee Retention Credit (ERC) is a refundable tax credit designed to provide employment tax relief for businesses that endured certain pandemic-linked difficulties in 2020 and 2021 yet retained employees on payroll. However, the ERC’s complex eligibility framework, often-lucrative value, and an unregulated preparer industry have made it vulnerable to infiltration by unscrupulous actors who aggressively marketed scams and misled business taxpayers under the guise of lawful services, often for large fees. Due to a substantial processing backlog aggravated by fraudulent and erroneous claims, the IRS implemented compliance enforcement initiatives, slowed or halted ERC processing for stricter review, and imposed a moratorium on processing ERC claims filed on or after September 14, 2023. To conserve staffing resources and encourage voluntary compliance for business taxpayers, the IRS deployed an ongoing ERC Withdrawal Program and a temporary Voluntary Disclosure Program (VDP) requiring taxpayers to withdraw unprocessed returns and repay overstated credits.

The ERC’s complexity and the IRS’s focus on identifying incorrect claims means there are undoubtedly eligible business taxpayers with legitimate ERC claims who are experiencing lengthy delays. These taxpayers are waiting for information about their ERC claims because the IRS has not posted processing updates and offers no mechanism for taxpayers to check their claim status online. The IRS must find a balance between fraud prevention and taxpayer service to ensure it preserves the taxpayer rights to finality and to challenge the IRS’s decision and be heard.87 For business taxpayers to get the relief Congress intended, the IRS should improve its process to identify legitimate ERC claims in better, more timely ways; significantly increase the volume of ERC claims it processes (approval of claim, denial of claim, or initiation of an audit of the claim); and be transparent by posting general updates on the ERC claims backlog and estimated processing timelines.