IRS Announces Moratorium on New Employee Retention Credit (ERC) Claims Amidst Concerns of Fraudulent Activity


Business Person-3

Date: October 16, 2023

In a move aimed at safeguarding honest small businesses from potential scams, the Internal Revenue Service (IRS) declared an immediate moratorium on the processing of new Employee Retention Credit (ERC) claims from September 14th through until at least the end of the year. The decision comes in response to escalating concerns within the IRS, from tax professionals, and media reports highlighting a surge in questionable claims, potentially placing businesses at compliance and financial risk.

Background: The IRS, facing a backlog of 600,000 claims and processing approximately 40,000 claims per week, has suspended processing of new ERC claims until 2024. During this period, the processing times for existing claims are expected to double as the IRS intensifies its scrutiny of compliance and eligibility.

Settlement and Withdrawal Initiatives: To address the issue of improper ERC claims, the IRS has announced two initiatives. Firstly, a settlement program is in development, allowing businesses to repay erroneously received ERC payments to avoid penalties and future compliance actions. Secondly, a withdrawal option will be available for businesses with filed but unprocessed claims, aiming to prevent repayment issues and avoid paying contingency fees to promoters. However, it's crucial to note that withdrawing a fraudulent claim does not exempt taxpayers from potential criminal exposure.

Increased Compliance Efforts: The IRS is actively working to combat fraudulent claims and promoters taking advantage of the ERC program. The agency has shifted its focus to review existing claims for compliance concerns, including heightened audit activities and criminal investigations targeting promoters and businesses filing dubious claims.

Impact on Processing Times: While the moratorium is in place, existing ERC claims will experience extended processing times, moving from the standard 90 days to 180 days due to increased compliance reviews. The IRS may also request additional documentation to ensure the legitimacy of claims.

IRS Commissioner's Statement: IRS Commissioner Danny Werfel expressed growing concern about the abuse of the ERC program, emphasizing the need to protect honest small business owners. He urged businesses to seek advice from trusted tax professionals and cautioned against aggressive promoters looking to exploit the system.

Combating Fraud: The IRS is collaborating with the Justice Department to address fraud in the ERC program, conducting audits, and actively investigating promoters who violate rules and encourage businesses to submit questionable claims. Businesses are advised to exercise caution, seek trusted professional advice, and stay informed about IRS guidance during this period of increased scrutiny.

Here's what Silicon believes you should consider when reviewing your clients supporting documents:

IRS guidelines clearly state that an Employer is an "Eligible Employer" for the Employee Retention Tax Credit if it:

  • Sustained a full or partial suspension of operations limiting commerce, travel, or group meetings due to COVID-19 and orders from an appropriate governmental authority or;

  • Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021 or;

  • Qualified in the third or fourth quarters of 2021 as a recovery startup business.

  • Companies who self-prepared their ERTC claims or used a third-party provider who did NOT document the impact of the mandates on your business may benefit from obtaining more complete documentation for their files. 

Please reach out to our team and we will be happy to assist you.

Source: Silicon Ledger

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