On September 14, 2023, the Internal Revenue Service (IRS) ordered an immediate moratorium on the processing of new Employee Retention Credit (ERC) claims through at least the end of the year. The agency cited a “flood of improper” claims, concerns from tax professionals, and the “aggressive marketing to ineligible applicants” as reasons for the moratorium. The IRS will continue to work on previously filed ERC claims, but stricter compliance reviews will extend the processing time from approximately 90 days to 180 days or longer.
The current moratorium will allow the IRS to add more safeguards to prevent future abuse and to protect businesses and the tax system. These include initiatives to help fraud victims as well as a new withdrawal option (both discussed below).
The IRS warned businesses in the moratorium announcement (IR-2023-169) that:
- Anyone who improperly claims the ERC must pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse financial position if it has to pay back the credit than if the credit was never claimed in the first place. This underscores the importance of taxpayers taking precautionary steps to independently verify their eligibility to receive the credit before applying through a promoter.
The IRS is also working with the Justice Department to address fraud in the ERC program, and the IRS Criminal Investigation division is actively working to identify fraud and promoters of fraudulent claims for potential referral for prosecution to the Justice Department.
New Initiatives to Help Fraud Victims
The Service is currently developing new initiatives to help businesses that were victims of “aggressive promoters.” This includes a settlement program for repayments for those who received an improper ERC payment. The settlement program may allow some businesses to avoid penalties and future compliance action.
Special Withdrawal Option
The IRS is also developing a special withdrawal option to allow businesses that have filed an ERC claim to withdraw it before it has been processed. This withdrawal option may help businesses avoid possible repayment issues and the need to pay a promoter’s contingency fee. Withdrawing a fraudulent claim, however, will not exempt businesses and their owners from potential criminal investigation and prosecution.
The ERC provides a refundable payroll tax credit to qualified small to medium-sized business owners that were adversely impacted during the COVID-19 pandemic. The ERC program expired on September 30, 2021, but qualifying companies have until April 15, 2024, to claim the credit for 2020 and until April 15, 2025, to claim the credit for 2021.
If you have questions about the ERC moratorium, contact us. We are here to help.