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IRS Pauses Employee Retention Credit Claims Processing

S.J. Steinhardt
Published Date:
Sep 15, 2023

In response to a proliferation of fraudulent claims, the IRS has imposed a moratorium on the processing of all claims for the Employee Retention Credit (ERC).

The moratorium, which will last through the end of 2023, will allow the IRS to add more safeguards to prevent future abuse and to protect businesses from predatory tactics. The IRS also said that it is working with the U.S. Department of Justice to pursue fraud fueled by aggressive marketing.

The IRS stated that Commissioner Daniel Werfel ordered the moratorium “following growing concerns inside [the IRS], from tax professionals as well as media reports that a substantial share of new claims from the aging program are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.”

The ERC is a refundable tax credit for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or that had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021. The IRS has repeatedly warned businesses and tax-exempt groups to be wary of companies and individuals that falsely tell them that they are eligible for the credit. Those repeated warnings  have not deterred unscrupulous promoters from falsely advertising their ability to obtain the credit for almost anybody.

The IRS continues to process ERC claims received prior to the moratorium, but it noted that increased fraud concerns will mean longer processing times due to enhanced compliance reviews, it said in the announcement.

"The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in," Werfel said. "The further we get from the pandemic, the further we see the good intentions of this important program abused. The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants."

The IRS is developing new initiatives to help businesses that found themselves victims of aggressive promoters, including a settlement program for repayments for those who received an improper ERC payment. More details will be available this fall, the tax agency said.

In the mean time, the announcement provided advice for taxpayers on what to do as IRS works to help businesses facing questionable ERC claims.

That advice included the following:

• For those who haven't filed a claim yet, consider reviewing the guidelines and waiting to file; and

• For those who have filed and have a pending claim, carefully review the program guidelines with a trusted tax professional and check the new question-and-answer guide.

The IRS issued another warning on the same day that it announced the claims processing halt, reminding taxpayers that, “[a]lthough promoters advertise that ERC submissions are "risk free," there are actually huge risks facing businesses as the IRS increases its audit and criminal investigation work. Hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.”

To learn more about the ERC, attend the Foundation for Accounting Education's Suffolk Chapter: Legislative Updates Impacting New York CPA's Tech Session Webinar on Sept. 26.

Click here to see more of the latest news from the NYSSCPA.