top of page
  • Brittany Besler

IRS Orders immediate stop to Employee Retention Tax Credit claim processing

Updated: Sep 15, 2023

Moments ago the Internal Revenue Service (IRS) placed a moratorium on the processing of new claims until at least 2024. Read the entire IRS release here.

The IRS will continue to work through previously filed Employee Retention Tax Credit claims that were received prior to the moratorium. IRS commissioner Danny Werfel is taking this action in an effort to protect filers from a “surge of questionable claims.” The IRS emphasizes that payouts for these claims will continue during the moratorium period but at a slower pace due to the detailed compliance reviews. With the stricter compliance reviews in place during this period, existing ERC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure it is a legitimate claim.

The IRS commissioner Danny Werfel stated that "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,"

In addition, the IRS is working on finalizing details to allow for a withdraw option for those taxpayers who may feel they were misled by promoters. For those currently with a pending application at the IRS, they should review the options below to see if any of those could help with their current situation.

For those who haven't filed a claim yet, consider reviewing the guidelines and waiting to file: For those considering filing a claim, the IRS urges businesses to carefully review the ERC guidelines during the processing moratorium period. The IRS urges businesses to talk to a trusted tax professional – not a tax promoter or marketing firm looking to make money generating applications that takes a big chunk out of the ERC claim. The new question and answer guide can also help. A careful review of the rules will show that many of these businesses do not qualify for the ERC, and avoiding a bad claim will avoid complications with the IRS.

Withdraw an existing claim for businesses that have already filed: For those who have filed and have a pending claim, they should carefully review the program guidelines with a trusted tax professional and check the new question and answer guide. For example, the IRS is seeing repeated instances of people improperly citing supply chain issues as a basis for an ERC claim when a business with those issues will very rarely meet the eligibility criteria. Under any scenario, if a business claimed the ERC earlier and the claim has not been processed or paid by the IRS, they can withdraw the claim if they now believe it was submitted improperly – even if their case is already under audit or awaiting audit. More details will be available shortly.

Wait for the IRS ERC settlement program to be finalized: If a business has already received an ERC that they now believe is in error, the IRS will be providing additional details on the settlement program in the fall that will allow businesses to repay ERC claims. The settlement program will allow the businesses to avoid penalties and future compliance action. The IRS is continuing to assess options on how to deal with businesses that had a promoter contingency fee paid for out of the ERC payment.

The IRS further continued to warn against promoters and list out the warning signs of such aggressive marketing they are seeing such as:

  • Unsolicited calls or advertisements mentioning an "easy" application process.

  • Statements that the promoter or company can determine ERC eligibility within minutes.

  • Large upfront fees to claim the credit.

  • Fees based on a percentage of the refund amount of Employee Retention Credit claimed. This is a similar warning sign for average taxpayers, who should always avoid a tax preparer basing their fee on the size of the refund.

  • Preparers seeking anonymity by refusing to sign the ERC return being filed by the business as well as supplying their identifying information and a tax identification number. Similar to "ghost preparers," this limits the risk to just the taxpayer claiming the credit.

  • Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group's tax situation. In reality, the Employee Retention Credit is a complex credit that requires careful review before applying.

Unscrupulous promoters may lie about eligibility requirements, including refusing to provide detailed documents supporting their computations of the ERC. In addition, those using these companies could be at risk of someone using the credit as a ploy to steal the taxpayer's identity or take a cut of the taxpayer's improperly claimed credit. The full warning is here.

If your organization has an ERC claim pending, has a previously filed ERC, or is considering a future claim we can provide an additional review or audit assistance as needed. The rules around ERC are complex and the IRS has gone through significant lengths to explain and educate the public on the credit itself. However, in some cases, there are still open questions that may take years to understand. It is important to work with a trusted advisor when evaluating these claims. Although this means a temporary stop to the IRS's processing of the claims, those companies with eligibility should continue to evaluate their position and consider filing their claim prior to the statue expirations starting in April 2024. We are here to support our clients in understanding these complex rules.

6 views0 comments


Post: Blog2_Post
bottom of page