IRS ERC Claims Process

The COVID-era employee retention credit (ERC) officially ended on April 15, 2025.  Still, many business owners claim they had legitimate ERC claims that have yet to be processed.  By way of background, the IRS temporarily paused processing of ERC claims process due to a significant number of fraudulent claims. While the IRS now continues to review ERC claims and pay out legitimate claims, they have also identified several key warning signs that it will be watching for when reviewing employee retention credit claims.  At one point, the IRS stated that somewhere between 10% and 20% of all claims had significant red flags.  The slower pace, according to the IRS, is necessary because of the complexity of these claims.  Even for low-risk claims, the IRS will conduct an additional review to ensure the taxpayer’s calculations were correct.  Incorrect calculations will be adjusted before payments are sent out.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether the IRS has properly handled the ERC claims process.

Below is a summary of the debate that ensued between the two professors.

Their Votes:





Bloink: The IRS has devoted significant resources toward processing ERC claims.  The fact is, even with increased funding, resources are always limited.  The magnitude of the problem of erroneous ERC claims was such that detailed programs had to be developed and implemented to prevent wasting taxpayer dollars and to avoid allowing non-qualified businesses to profit from improperly awarded ERC funds.  That can—and did—take time.

Byrnes: Countless law-abiding Americans have yet to receive their ERC refunds even years after filing legitimate claims.  The IRS has completely dropped the ball when it comes to processing employee retention credit claims.  Employers who suspected they had filed erroneous ERC claims were given strong incentive to repay 80% of the amounts they received—effectively freeing up IRS resources so that they didn’t have to investigate such a significant number of claims.

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Bloink: Ensuring that fraudulent claims are not paid must be the IRS’ top priority when determining how to best handle the flood of ERC claims that were made in the wake of the pandemic--and the fraudulent claims were so widespread that extra caution had to be taken and is still being taken.  The IRS delays are completely justifiable.

Byrnes: We've all seen the IRS guidance on warning signs that an ERC claim may be invalid.  We're also hearing that taxpayers who submitted legitimate claims that in no way resemble fraudulent claims and exhibit no warning signs have still not yet received the tax refunds that they deserve from the IRS.  Taxpayers who legitimately qualify for the ERC are still being penalized because the government seems to be unable to review their claims in a timely manner.  It doesn't seem that the IRS actually has a workable solution, and claims are being paid out or denied for various quarters in a haphazard manner.

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Bloink: The fraud that occurred with respect to the ERC was so widespread that the delays in paying out even legitimate claims were inevitable.  The IRS process for withdrawing erroneous ERC claims and the voluntary disclosure program were both complicated to create and administer.  The bottom line is that the IRS choose to adopt a methodical and effective system for processing ERC claims rather than haphazardly pay improper claims and seek to recoup those improper payments later.

Byrnes: With a significant increase in funding under the Inflation Reduction Act, the IRS should have--and should now--make processing legitimate ERC claims a priority so that hardworking American business owners can get the money they need and deserve.  That priority should be just as significant as weeding out the fraudulent claims and I don’t see how we can blame the years-long delays on a lack of funding when the IRS received a windfall ten-year funding increase just in 2022.