Is it advisable for employers with pending IRS ERC claims to pursue a refund lawsuit?
Navigating the Federal Tax Refund Process: Understanding Your Options and Deadlines
Recent IRS news regarding the Employee Retention Credit (ERC) has shed light on the agency’s struggles to process millions of claims from employers. With over one million ERC claims still pending review, the IRS faces a significant backlog that may take some time to address. The National Taxpayer Advocate (NTA) highlighted the complexity of these claims and noted that amended returns, in general, were being processed more slowly due to staffing shifts towards phone support during tax filing season.
Employers seeking resolution for their pending ERC claims have the option to file a refund lawsuit against the government in federal court if the IRS fails to act within six months or issues a notice of disallowance. However, the lack of a specific deadline for the IRS to process ERC claims leaves employers in a state of uncertainty.
Legal precedents such as Detroit Trust Co. v. U.S. have established that taxpayers may have an extended period to file a refund suit if the IRS does not issue a notice of disallowance. The IRS Chief Counsel Notice further supports this position, indicating that the general six-year period of limitation for bringing claims against the government does not apply to tax refund suits.
Employers facing delays in receiving their ERC funds must weigh their options carefully. While some may choose to wait for the IRS to review their claims, others may opt to file a refund suit to expedite the process. Regardless of the chosen course of action, employers should be aware of relevant statute of limitations deadlines to avoid potential pitfalls, such as losing out on both the ERC refund and the ability to increase wage expenses through an amended return.
Ultimately, navigating the complexities of ERC claims requires careful consideration and proactive measures to protect businesses from potential financial losses. By staying informed and taking strategic actions, employers can mitigate risks and ensure a favorable outcome in their dealings with the IRS.
