Titan Mutual Lending Inc., a California-based mortgage lender, is locked in a legal battle with the Internal Revenue Service, demanding a $5 million refund for worker tax credits it claims were wrongfully denied. The lawsuit, filed Thursday in a federal court, alleges that the IRS denied one of Titan's claims for employee retention credits (ERC) without conducting an audit. Titan insists it deserves the refund, which pertains to employee retention tax credits under the CARES Act.

The Claim Denial and Titan’s Fight for Justice

Titan’s lawsuit centers on the IRS’s refusal to approve its amended returns for the last three quarters of 2020 and the first three quarters of 2021, which sought credits to support its workers during the COVID-19 pandemic. Despite Titan’s belief that it met all the requirements set forth by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the IRS denied its claim without offering an explanation or conducting an audit.

The company claims that it qualified for the credits because of pandemic-era regulations that severely impacted its business operations. As a lender with substantial FHA and VA-backed loans in its portfolio, Titan was directly affected by federal moratoriums on foreclosures and evictions, which, according to Titan, disrupted its operations and business cash flow during the pandemic.

Titan’s Efforts to Resolve the Dispute

In response to the IRS’s rejection, Titan sought a review of the decision through the IRS's Independent Office of Appeals. However, nearly a year has passed without any resolution or explanation from the IRS regarding the denial. Titan now hopes to recover the $5 million it believes it is entitled to, based on claims for the ERCs, which were designed to help businesses retain workers during the crisis.

The IRS Under Fire for Its Handling of ERC Claims

Titan’s lawsuit highlights a broader issue that has plagued thousands of businesses across the nation. The IRS has faced mounting criticism for its processing of ERC claims, with many businesses arguing that they were wrongfully denied without proper examination. Titan's case is just one of many similar lawsuits against the IRS.

Other businesses, like Stenson Tamaddon LLC and ERC Today LLC, have filed lawsuits claiming that the IRS has been arbitrarily rejecting claims and disallowing taxpayer benefits without sufficient justification. In one particularly alarming incident, a photo circulated showing stacks of IRS disallowance letters sent to a tax preparation firm, all bearing identical language: "We can't allow your claim."

The IRS has defended its actions, stating that it has been sorting claims based on perceived risk, a practice it says is in line with its regulations. Despite this, the National Taxpayer Advocate has flagged the delays and lack of transparency in the IRS’s handling of ERC claims as a significant issue, with many businesses still waiting for refunds that could help them recover from pandemic-era losses.

IRS Moratorium and Its Fallout

In September 2023, the IRS imposed a moratorium on processing new ERC claims after the agency flagged a surge of fraudulent submissions. However, the agency has indicated that it has since improved its systems to better identify legitimate claims, and some businesses are now receiving checks.

For now, Titan Mutual Lending continues its fight for the refund it believes is rightfully owed. The lawsuit underscores the ongoing frustration among business owners who feel that the IRS is making it difficult for them to access vital relief funding.

Representing Titan in this case are Jonathan D. Freund of Freund Legal and Justin H. DiLauro of DiLauro Tax Law. The IRS has yet to offer any public comment on the matter.