Will the IRS continue to “make it rain” in May, or will we see a continued increase in ERC denials disguised as poisonous flowers?
📈 After nearly a 20% drop from last week, the IRS “totally redeemed themselves” by bring us us a whopping 62% week-over-week increase in refund processing, the second highest volume week since 2023. Our data shows 947 ERC refunds were processed with a May 12 refund date, a noteworthy increase from 589 refunds processed the previous week. What a serious comeback and a roller coaster ride this has been! 🎢
📈 But wait…that’s not all, we also saw a MAJOR splash 🌊 in average refund amount per quarter with a 63% spike in the refund size as the IRS delivers an impressive $180,609 this week, up from $110,992 last week. These results are surely hard to ignore but the question remains: will they be able to sustain the momentum, or will the ups and downs continue?
All-in-all, the past weekend marks the total highest dollar-volume in refunds since 2023.
An amazing feat!
1.The Prospect of an ERC Killer Bill Looms: Yes, we could see a draft of the “Big, Beautiful, Tax Bill” as soon as next week, which may give a glimpse into the fate of post January 31st, 2024 ERC filings if retroactive termination provisions are included in this draft bill. House Republicans are pushing to pass a major reconciliation bill, including over $4 trillion in tax provisions by Memorial Day. Although key markups, especially by the Ways and Means Committee, could delay that timeline. Treasury Secretary Scott Bessent has set July 4th as the new target for sending the bill to President Trump, with Speaker Mike Johnson and other GOP leaders optimistic about hitting that goal. Progress depends on committees finalizing their spending cut proposals, which will determine how much room there is for tax cuts. Still, unresolved issues like the SALT deduction cap and inter-chamber negotiations may push final action closer to the August recess.
2. PEOs Failing to File Schedule Rs may Put Clients at Major Risk of Not Receiving their ERC: According to industry insiders, the IRS has invalidated over 2,700 ERC refund claims filed by PEOs that failed to include the required Schedule R, which details how credits are allocated to individual clients. Without this schedule, the IRS says it cannot verify the legitimacy of the claims, rendering them invalid both formally and informally. Since the statute of limitations has passed, most affected PEOs and their clients may have no way to correct the error. While the IRS guidance isn’t legally binding, it leaves many businesses at risk of losing expected refunds and there remains uncertainty as to whether any corrective procedures may be available after the statute has passed.
3. Injunction Efforts Against IRS 105C Procedures Fail due to Standing: Early last month, a federal court denied a preliminary injunction sought by ERC Today and Stenson Tamaddon challenging the IRS’s use of an automated system to disallow ERC claims without individual review. The court found that while the firms showed economic harm from the increased denials, they failed to prove that stopping the automated system would actually redress that harm, as many claims might still be denied after full review. While the court found the plaintiffs failed to justify an injunction, it acknowledged concerns that legitimate claims might be wrongly disallowed under the IRS’s automated model. This case signals that the IRS’s use of automation in claim review may expand, and taxpayers should be ready to appeal or litigate rejected ERC claims.
Kenny's Conclusions
While this past week’s record-breaking numbers call for a moment of celebration, it still feels like we’re a long way from being out of dodge. With denials trending upward and ERC v. McInnelly further in the rearview, it’s certainly too soon to assume we won’t end up back in the doldrums of ERC processing once the IRS clears whatever inventory remains in their low-risk queue. There also remains significant uncertainty around the future leadership of the IRS, and the current interim IRS head, Michael Faulkender, has previously expressed the belief that the ERC program is riddled with fraud. Has his tune since changed?
Let’s see what next week brings…
Signing off!
Kenny Dettman, CPA
Disclaimer: *𝘋𝘢𝘵𝘢 𝘴𝘦𝘵 𝘪𝘴 𝘧𝘳𝘰𝘮 𝘢𝘱𝘱𝘳𝘰𝘹𝘪𝘮𝘢𝘵𝘦𝘭𝘺 10,000 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴𝘦𝘴 𝘵𝘳𝘢𝘤𝘬𝘪𝘯𝘨 𝘌𝘙𝘊*
