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On November 22, 2021, we notified the Director, Customer Account Services, Wage and Investment Division, that IRS employees were erroneously suspending Forms 941-X when the amended employment tax return did not include an adjustment to the amount of deferred Social Security tax. We recommended that the Accounts Management function immediately review the Forms 941-X that are identified in the suspense inventory as an adjustment to the amount of deferred Social Security tax to ensure that they are categorized properly.

The Commissioner, Wage and Investment Division, should evaluate the current inventory of backlogged claims related to pandemic relief and develop specific plans to prioritize claims and develop timelines to process backlogged claims.

The Commissioner, Wage and Investment Division, should review the 928 business entities identified that do not appear to qualify as an RSB and take actions needed to recover the ERCs that are determined to be erroneous.

The Commissioner, Small Business/Self-Employed Division, should identify all fourth quarter Tax Year 2021 paper-filed Forms 941 processed prior to when the programming was implemented and identify amended employment tax returns receiving the ERC for which there was no indication that the business was an RSB and take actions needed to recover the ERCs that are determined to be erroneous.

On May 13, 2021, we notified the Director, Examination, Small Business/Self-Employed Division, about the inconsistent referral criteria and recommended that the IRS update referral criteria to include Forms 941-X with refundable credits.

On November 23, 2021, we alerted the Director, Customer Account Services, Wage and Investment Division, that Forms 941-X were not being referred to Examination as required and recommended that the Accounts Management function provide additional guidance to its employees to reinforce established CAT-A referral criteria.

The Commissioner, Wage and Investment Division, should review the 41 Form 941-X claims identified with a nonrefundable COVID-19 related employer credit that meet CAT-A referral criteria and take actions needed to recover credits that are determined to be erroneous.

Provide additional training to employees as it relates to referring Forms 941-X to Examination for review.

Submit a request for the development of a systemic process to identify Form 941-X claims that meet referral criteria and alert the Accounts Management employee when processing these claims of the need to refer the return to Examination.