Years after the COVID-19 pandemic era Employee Retention Credit (ERC) program officially ended, the fight over who qualified for it drags on. Now, the IRS has announced that some taxpayers who were denied their claims for the credit can extend the period for its Independent Office of Appeals to review their responses. The goal? Offering taxpayers a path to avoid going to court to litigate their denied ERC credit claims.

What is the ERC Program?

The ERC program was intended to help businesses keep the lights on during the pandemic. Under the ERC program, eligible employers included those that paid qualified wages to some or all employees after March 12, 2020, and before January 1, 2022. Typically, to qualify, a business needed to demonstrate that a government order fully or partially suspended operations due to COVID-19 during 2020 or the first three calendar quarters of 2021, or that the business experienced a specific decline in gross receipts during the relevant periods in 2020 or the first three calendar quarters of 2021. Some businesses may also qualify as recovery startup businesses for the third or fourth quarters of 2021.

The amount of the credit was significant. For 2020, the credit was 50% of up to $10,000 in wages per year, meaning it could be as high as $5,000 per employee. In 2021, it was much more generous: 70% of up to $10,000 in wages per quarter, meaning it could be as high as $21,000 per employee.

What was the Problem with the Program?

According to the IRS, the ERC program was a magnet for fraud. In September 2023, citing concerns about improper ERC claims, the IRS announced a moratorium on processing new ERC claims.

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In December 2023, the IRS also announced a voluntary disclosure program for businesses that wished to repay funds they received after filing erroneous ERC claims. That was followed by a second ERC voluntary disclosure program, which applied only to tax periods in 2021.

Businesses that didn’t qualify for the........

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