At a recent IRS Nationwide Tax Forum, it was brought to our attention that the IRS will soon begin a new initiative for ERC claims. Starting with claims for the 2020 tax year, the IRS will use an algorithm to categorize each claim by its level of risk. Though we have little insight to the algorithm’s parameters, we have been informed that the 10-20% considered as low risk will be processed and paid, while the 10-20% deemed as high-risk will be denied. The 60-70% considered to be mid risk will be analyzed before processing payment. Since the initiation of this program will solely focus on claims for 2020, this will alternatively result in longer delays for any credits associated with 2021. Fortunately, if the claim is accepted by the IRS, they will assess any additional interest.

In processing ERC claims through the new program, the IRS will also determine if required amended returns were filed. In these cases, an ERC claim will not be processed until the appropriate amended return has been filed reporting the reduction in wages (business return) and increase in income (personal return).  If your amended return has not yet been filed this could cause further delay in processing your ERC claim. Furthermore, if your 2020 claim requires an amended return, it will be most critical to ensure the return is filed promptly as the statute of limitations for 2020 income tax returns expires in 2024.

We will keep you updated as more information is announced. Please contact us with any further questions.