GAO says tax pros helped shape IRS response to ERC issues

Recommendations from tax practitioners may have reduced improper employee retention credit (ERC) payments, according to a watchdog report that recommends four ways for the IRS to close the chapter on the pandemic-era credit.

In a February report to Congress, the U.S. Government Accountability Office (GAO) attributed several changes that the IRS made in dealing with the ERC to recommendations by tax professionals. They included a two-part voluntary disclosure program (VDP); an updated website, including an ERC eligibility tool; and a bulletin in March 2023 detailing how tax practitioners could meet professional responsibilities when preparing returns claiming the ERC.

“These programs were developed and adapted in response to tax practitioner feedback, according to IRS officials,” the report said of the VDP. “The growth of ERC promoters and IRS communication in 2023 about ERC scams led to increased interest among stakeholders for a VDP, according to IRS officials.”

The VDP, the website update, and professional responsibility guidance are examples of the IRS “using lessons learned stemming from stakeholder input,” the report said. “Developing programs and other responses that help address the cause of stakeholder concerns can help IRS reduce improper payments, including those stemming from fraud, in future relief efforts.”

Several payroll and tax professionals told the GAO that IRS guidance such as FAQs was helpful. The professionals also recognized that the IRS was tasked with issuing new material quickly, the report said.

The GAO reported in 2022 that the IRS developed and revised guidance and tax forms for the COVID-19 employment tax credits under tight time frames during the pandemic, beginning in March 2020. That work continued into 2025.

In some cases, however, the guidance was unclear or was not issued in a timely fashion, such as in March 2025, when the IRS issued guidance on when to amend income tax returns that had passed the deadline for filing, the report said. Some employers may have continued to delay filing amended income tax returns until the IRS notified them about their ERC claim, according to the FAQs and the Taxpayer Advocate Service.

The GAO met with representatives and tax practitioners from the AICPA and two other organizations — the National Association of Professional Employer Organizations and PayrollOrg — to discuss their members’ experiences with ERC implementation and suggested lessons learned.

ERC background

The ERC, which Congress passed in March 2020, was designed to help certain businesses continue paying employees during the COVID-19 pandemic while operations were fully or partially suspended due to a government order or when the businesses had a significant decline in gross receipts during the eligibility periods. It was generally available to eligible businesses from March 31, 2020, to Sept. 30, 2021, and until Dec. 31, 2021, for recovery startup businesses.

To counter a flood of claims resulting from ERC mills, the IRS took various steps in addition to the two VDPs, including a moratorium on processing claims and a claim withdrawal process.

IRS-Criminal Investigation (IRS-CI) has conducted thousands of investigations alleging $10 billion of fraud related to COVID-19 relief, including the ERC. As of February 2025, IRS-CI had begun 2,039 tax and money laundering cases related to COVID-19 relief. In addition, 1,028 people had been indicted for alleged crimes related to COVID-19 relief, and 569 individuals had been sentenced to an average of 31 months in federal prison.

ERC claims status

The IRS told the GAO that it had closed all ERC claims, which totaled nearly 5 million as of June 2025, other than the 41,000 that remain in examination or appeal as of Dec. 31. However, the IRS neither provided documentation of the figure nor did it provide a definition of what it considers to be a “closed” claim, the GAO said. And it has not publicly announced this status, which the GAO recommended.

“Such information would increase transparency and let employers with previously pending claims know to expect correspondence from IRS,” the GAO wrote. “Providing updates to the public about the status of ERC claims remaining to be processed and estimates for completion would help employers anticipate possible refunds, which can help with business planning. Additionally, employers will continue to call, write, or visit IRS to try to obtain this information, and IRS will continue to struggle to meet demands for taxpayer customer service.”

GAO recommendations

The GAO made three other recommendations for actions by the IRS commissioner:

• Develop and report an improper payment estimate for ERC payments. The IRS disagreed with this recommendation, suggesting the development of “a lessons-learned summary related to ERC administration to inform the design and oversight of future emergency tax relief programs.”

• Include amended employment tax returns in its modernization efforts for processing and for data capture. The IRS agreed with this recommendation.

• Develop policies to ensure that — when implementing emergency employment tax relief — the agency adheres to the five principles in GAO’s A Framework for Managing Improper Payments in Emergency Assistance Programs. The IRS agreed with the intent of this recommendation.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.