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New Report Cites Continued Pandemic Relief Refund Delays at the IRS

If your organization is waiting for employer tax credits and tax refunds related to pandemic relief, you’re not alone. A recent report from the Treasury Inspector General for Tax Administration (TIGTA) found that due to continued processing delays at the IRS, many entities have not yet received pandemic relief benefits, including those related to the Employee Retention Credit (ERC) and Sick and Family Leave Credits.

The report was a follow-up to TIGTA’s July 2021 review of the IRS’s processes and procedures around COVID-19 pandemic-related employer tax credits on original and amended tax returns.

The findings in the new report highlight continued challenges, including the following:

  • The IRS did not begin processing claims for the ERC and qualified Sick and Family Leave Credits for 12 months after the pandemic relief legislation was enacted, due to “a lack of updated programming and procedural guidance.” TIGTA attributed additional processing delays to insufficient training, erroneously suspended claims, and a lack of prioritization of claims.
  • The timing of various legislative provisions increased the number of Forms 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, received from employers that wanted to amend their original Form 941, Employer’s Quarterly Federal Tax Return, to claim or increase pandemic-related employer credits.
  • Due to a lack of process, amended returns with ERC claims were not referred to Examination for review as required. According to the report, this resulted in the IRS allowing $45 million in “potentially erroneous nonrefundable employer tax credits.” The report also noted that tax examiners did not always refer amended returns without a refundable tax credit, as required.
  • The Infrastructure Investment and Jobs Act signed into law in November 2021 retroactively ended the ERC to apply only through September 30, 2021, unless the employer is a recovery startup business. However, the IRS does not have processes in place to verify a recovery startup business or adequate controls to deny the ERC for businesses that are not recovery startup businesses.

According to the report, TIGTA made nine recommendations to the IRS, including creating plans for prioritizing the processing of backlogged claims and updating Examination referral criteria to include Forms 941-X with refundable credit claims. The IRS did not accept the recommendation to provide additional employee training on referring Forms 941-X to Examination for review but did accept the other eight recommendations. However, TIGTA noted that the IRS’s subsequent reviews do not address the training concerns identified in the report.

You can learn more about the ERC with our answers to frequently asked ERC questions. We also can work with you to address your organization’s specific questions and needs, as explained in this short video.

Please do not hesitate to contact us if you have questions or would like more information. We are here to help.

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