When You Can Expect Your ERC Refund?

A new report form the National Taxpayer Advocate says that, “The IRS finished the filing season with a backlog of over 35 million individual and business income tax returns that require manual processing — meaning that employee involvement is generally required before a return can advance to the next stage in the processing pipeline. The backlog includes about 16.8 million paper tax returns waiting to be processed; about 15.8 million returns suspended during processing that require further review; and about 2.7 million amended returns awaiting processing.” For context, The Washington Post notes that this backlog is four times that of 2019, the most recent year before the coronavirus pandemic.

The issue of delayed processing specifically related to Employee Retention Tax Credit processing was discussed in a House Subcommittee hearing on March 18, 2021 with IRS Commissioner Charles Rettig.

In May, the Treasury Inspector General for Tax Administration (TIGTA) found that broken printers were contributing to the IRS’ backlog.

The IRS has been periodically updating a web page called, “IRS Operations During COVID-19: Mission-critical functions continue.” In information updated May 21, 2021, under the heading, “Filed an Individual Tax Return (Form 1040) for tax year 2019 or tax year 2020, a Business Tax Return or an Amended Return (updated May 21 2021),” the IRS, for the first time, addressed the question of delayed Forms 941 and 941-X, the returns on which ERC is claimed:

“Status of Processing Form 941, Employer’s Quarterly Federal Tax Return and Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund: The IRS is now opening mail within normal timeframes. The IRS has also made significant progress in processing Forms 941. As of May 6, 2021, we had about 200,000 Forms 941 received prior to 2021 in the processing pipeline. Including current year returns, as of May 6, 2021, we had 1.9 million unprocessed 941s in the pipeline. We are rerouting tax returns and taxpayer correspondence from locations that are behind to locations where more staff is available, and we are taking other actions to minimize any delays. Tax returns are opened in the order received.… As of May 7, 2021, our inventory of unprocessed Forms 941-X was approximately 100,000 which cannot be processed until the related 941s are processed. While not all of these returns involve a COVID credit, the inventory is being worked at two sites (Cincinnati and Ogden) that have trained staff to work possible COVID credits.”

The June 15 update to this information dropped reference to forms 941-X. Regarding Forms 941, they said, “As of June 9, 2021, we had about 33,000 Forms 941 received prior to 2021 in the processing pipeline. Including current year returns, as of June 9, 2021, we had 2.5 million unprocessed 941s in the pipeline.”

In the July 16 update, reference to “Amended Return” was dropped from the header, and information about Forms 941-X continued to be absent. IRS stated, “As of July 2, 2021, we had 1.8 million unprocessed Forms 941.”

This information from the IRS is reiterated in a report from the Government Accountability Office (GAO) dated July 2021 (see pp. 212-215). GAO notes that as of May 2021, IRS had processed 146,492 tax returns claiming ERC for a total of $10.2 billion in credits. Less than 1 percent of employment tax filings included ERC claims.

Clearly, the unprecedented size of the ERC program coupled with layers of complications resulting from the pandemic have resulted in a “perfect storm” for the IRS that will take time to sort out.

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