The IRS watchdog advocates for greater transparency regarding the backlog of small business tax credit claims during the pandemic era.

• The National Taxpayer Advocate is urging the IRS to speed up the processing of legitimate employee retention credit (ERC) claims, which total around 1.4 million.
• The ERC was established to aid small businesses during the Covid-19 pandemic and could provide thousands of dollars per eligible employee.
• Nearly all ERC filings sent before the IRS stopped processing new claims in September remain unworked due to a wave of "questionable claims."

The National Taxpayer Advocate reports that many taxpayers are facing "prolonged wait times and ambiguity" due to a backlog of approximately 1.4 million pandemic-era small business tax credit claims.

The employee retention credit (ERC) was introduced to aid small businesses during the Covid-19 pandemic and could provide thousands of dollars per eligible employee. However, after a series of "doubtful claims," the IRS halted processing new applications in September.

The prolonged processing delays by the IRS are causing harm to taxpayers with valid ERC claims, as many have already waited a year or longer, according to National Taxpayer Advocate Erin Collins in her midyear report to Congress.

She wrote that it is necessary for the IRS to disclose its plans and timeline for addressing ERC claims.

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Nearly 666,000 unworked ERC claims were in a backlog before the September moratorium, and almost all filings sent before the moratorium remain unprocessed, according to the report. About 85% of pending ERC claims are older than 120 days.

Collins stated that the IRS faces a dilemma when processing ERC claims.

If the IRS denies ERC claims and further delays payments, the businesses for which Congress created the ERC will be harmed again, potentially costing tens of billions of dollars.

Collins plans to collaborate with IRS leadership to expedite ERC claim processing for eligible cases, which include thousands of pending cases with the Taxpayer Advocate Service.

Since the IRS announced that it will reject billions of dollars' worth of "unjustified" ERC claims while prioritizing lower-risk filings, the report has been released within a week.

"The IRS Commissioner, Danny Werfel, stated that this credit is one of the most complex the agency has administered and that taxpayers should remain patient as they work to unravel the process. He added that this process will ultimately help safeguard taxpayers from fraudulent payouts and ensure that checks are distributed only to those who are eligible."