The IRS has added five new items to its list of warning signs of incorrect employment retention credit (ERC) claims.

The new list stems from common issues that the IRS compliance teams have seen while analyzing and processing ERC claims, the agency said. The new items are in addition to seven problem areas the IRS previously highlighted.

The IRS is urging  businesses with pending claims to carefully review their filings to confirm their eligibility and ensure that the credits claimed don’t include any of these 12 warning signs or other mistakes.  Businesses considering applying for the complex credit also should follow the same steps before submitting a claim. The IRS also surged businesses with previously approved claims to review the filings as the IRS intensifies compliance efforts in this area. Businesses should act soon to resolve incorrect claims and avoid future issues such as audits, repayment, penalties and interest.

“The IRS continues working aggressively to pursue improper claims as well as increase payments going out to businesses with legitimate claims on these complex credits,” said IRS Commissioner Danny Werfel. “As we prepare for the next major announcement, we want businesses to be aware of common errors our compliance teams are seeing, many of which reflect bad advice coming from promoters. The IRS continues to urge people with pending claims or previously approved payments to talk to a trusted tax professional rather than a promoter and see if any of these red flags apply to them.”

The IRS is intensifying its effort to clear a backlog of claims, and to root fraudulent ones, since it announced a moratorium on processing new claims last September. That pause allowed the IRS to add more safeguards to prevent future abuse and to protect businesses from predatory tactics. Since the resumption of processing older ERC claims, the IRS has established a new process that gives employers the ability to rescind what may have been inaccurate ERC claims; started disallowing ineligible ERC claims; announced a voluntary disclosure program for businesses that received refunds for erroneous ERC claims; and started to process lower-risk ERC claims to help eligible taxpayers while denying tens of thousands of improper high-risk claims.

In March, the IRS announced that, since instituting a moratorium, it had identified more than $1 billion in questionable claims

The five newly announced signs of an incorrect ERC claim, which arose from common issues that the IRS compliance teams have seen while analyzing and processing such claims, are the following:

• Essential businesses during the pandemic that could fully operate and didn’t have a decline in gross receipts;

• Businesses unable to support how a government order fully or partially suspended business operations;

• Businesses reporting family members’ wages as qualified wages;

• Businesses using wages already used for Paycheck Protection Program (PPP) loan forgiveness; and

• Large employers claiming wages for employees who provided services.

The IRS also reminded businesses about the seven common issues it listed in February.

The IRS provides options to help businesses that have discovered they have questionable ERC claims. Unprocessed claims can be withdrawn under the ERC Withdrawal Program, and businesses that overclaimed the ERC can amend their returns to correct the amount of their claim. The IRS is in the final stages of reopening the ERC Voluntary Disclosure Program for a brief period, Accounting Today reported. Additional details are expected to be available shortly.