Amid concerns about fraudulent claims, the Internal Revenue Service (IRS) has implemented a moratorium on processing new claims for the Employee Retention Credit (ERC). During the pause on the pandemic-era relief program, the IRS will increase measures intended to prevent abuse of the program and protect businesses from predatory promotors employing aggressive tactics to scam the program. The pause will be in effect until at least December 31, 2023.
Why the IRS Paused Processing New ERC Claims
The IRS’s decision stems from growing concerns about a surge in improper claims, with some tax professionals noting that of the claims they’ve seen, 95% or more are ineligible. IRS Commissioner Danny Werfel expressed concern that the program’s intentions are increasingly being exploited by promoters running schemes that improperly use well-meaning businesses to reap money from the program.
During a conference call with reporters, Commissioner Werfel stated: “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. 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’s criminal division has thus far initiated 252 investigations involving over $2.8 billion in potentially fraudulent ERC claims as of July 31, 2023.
What Should Taxpayers Do Now?
If you are waiting on an existing ERC claim you know to be legitimate, understand that the process will be lengthy. Claims continue to be processed but at a slower pace due to the additional compliance scrutiny, with the IRS noting that average processing times could be 180 days or longer.
If you are concerned that an existing claim has been improperly filed and you haven’t received payment, consider withdrawing it. The IRS is finalizing details for a special withdrawal option for those who have filed an ERC claim that has not yet been processed. This option allows taxpayers to avoid possible repayment issues and paying promoter contingency fees. Consult a trusted tax professional to review your claim and ensure it is eligible for resubmission. If you are a Perkins client, please reach out to your advisor for further guidance.
If you have already received an ERC that you now believe is in error, look for direction from the IRS in the coming months on a settlement program allowing businesses to repay ERC claims while avoiding penalties and future compliance action. The IRS is assessing options for dealing with businesses that received promoter contingency fees from ERC payments.
If you still need to file a claim, carefully review the ERC program guidelines and consult a trusted tax professional to ensure you meet eligibility requirements before submitting. The IRS has released a question-and-answer guide that can help determine eligibility. If promoters pressure you to apply for the ERC, the IRS urges you to pause and review your situation with a reputable and trusted tax professional.
The Importance of a Trusted Tax Professional
The ERC is a complex credit with specific eligibility requirements. It is crucial to seek assistance from reputable tax professionals, like those at Perkins, who deeply understand the complex ERC rules. While the IRS’s moratorium may slow down claim processing, it is intended to serve as a proactive measure to preserve the program’s integrity and ensure eligible businesses receive the relief they deserve.
For more information or assistance with this credit, contact us or get in touch with your Perkins advisor.