Attorneys
Related Practices
Former Counselor to the IRS Commissioner and Shareholder Tom Cullinan was featured in an Accounting Today article discussing how the Internal Revenue Service (IRS) is continuing to challenge and audit claims for the Employee Retention Credit (ERC).
“Most IRS audits seem to result in denials, often using ‘pattern’ Letters 105C that misdescribe the underlying claim,” said Cullinan. “While the IRS is still allowing some claims, those seem limited to gross receipts or very clear-cut claims for partial suspension. Claims for the 3Q21 are especially unlikely to be granted.”
With the IRS having denied approximately 28,000 ERC claims in 2024 and appeals processes stalled, taxpayers are increasingly facing a path that leads to litigation. “Although the IRS has run out of time to open new audits on most claims that it paid, the audits that it did timely open continue to progress through audit and then to IRS Appeals. All this means that a lot more (perhaps hundreds or thousands) of ERC cases are going to end up in court,” he explained.
Cullinan elaborated on his time at the IRS. He shared that the IRS is doing things historically different than it used to. “It’s a pretty different environment than what tax controversy are used to, and there’s a real doubt about whether the regulation that the IRS promulgated to give itself that authority is even valid. We’re going to see all sorts of interesting questions pop up as a result of that.”
The article discussed the Kwong v. United States decision from last November and Cullinan added that the case doesn’t directly involve the ERC. However, “It could relate to anything else. It can relate to any underpayment or overpayment, because both have interest components to them rising out of those years regarding, so that type of argument could apply to an ERC claim, just as it could to anything else,” he said.
“Tax law is not always black and white, and the ERC, like so many areas of tax law, can be gray. The key is to resolve these cases in a way that takes that uncertainty into account in a way that’s fair to the taxpayer and fair to the government,” said Cullinan.
To learn more, subscribers may access the article here.