“How much longer are we going to have to wait?” A question being posed with increasing resonance as over 1.3 million Employee Retention Credit (“ERC”) claims sit stagnant with the IRS. Fueled by frustration, some taxpayers are no longer willing to wait it out.
Taxpayers are employing numerous avenues to try to gain traction with the IRS, including lobbying their Congressional representative, appealing to Taxpayer Advocacy Services (although of late, they have been resistant to accepting ERC-related issues), and taking the IRS to court. The courts have seen a big increase in ERC-related cases being filed.
These cases grapple with different issues and rely upon varying arguments based on the specifics of each taxpayer, but the overarching theme in many cases is disputing the continued inaction by the IRS. The crux of many of these suits rely upon the “six-month” language in IRC §6532. Generally, the period of limitation on suits for the recovery of internal revenue tax, penalty, or other sum shall not begin until at least six months from the filing date, if a taxpayer has not received a notice disallowing the refund during that time. However, the six-month requirement in IRC §6532 has not yet played out in the context of a moratorium, which raises questions of its applicability for taxpayers in the ERC moratorium context.
Additionally, some cases have been filed questioning the applicability of Notice 2021-20. Arguments have utilized application of the Administrative Procedure Act (“APA”) as the basis for asking the Court to deny the applicability of Notice 2021-20. This argument has been made in filings by Southern California Emergency Medicine and more recently by Stenson Tamaddon LLC, both in the 9th Circuit. The crux of this argument relies upon the fact that for a rule to be enforceable, as opposed to only offering guidance, agencies must apply APA administrative policies for proposing and establishing regulations. APA provides guidance for the formal notice and comment period that is employed when creating final regulations. When the IRS issued Notice 2021-20, in January 2021, the Notice did not go through the traditional APA process, since there was no proposed guidance before the final publication. If the Courts find that Notice 2021-20 is not enforceable, it can still be utilized as guidance internally by the IRS.
All of these suits are in early days, with suits likely not to see the courtroom until 2025 at the earliest. These cases ultimately seek to increase the overall pressure on the IRS to recognize that the lengthy moratorium is harming eligible U.S. businesses. The question remains of how long the IRS can continue with the moratorium under this increased scrutiny. In recent webinars and industry conferences, answers of “early summer” and “soon” have been informally provided as the timeline for when the moratorium might end, but with claim time stretching 18+ months, this provides little reassurance for taxpayers.
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