IRS Moratorium on ERC Claim Processing Until 2024

On Sept. 14, the IRS paused until 2024 the processing of newly filed claims for the Employee Retention Credit (ERC), a refundable tax credit for businesses and tax-exempt organizations with employees and were affected during the pandemic. The moratorium is in response to growing concern over the number of fraudulent and/or illegitimate claims still coming in for the relief program. The IRS believes most of the businesses that qualify have already submitted claims. See IR-2023-169 and IR-2023-170 detailing this process and ERC aggressive promotion warnings.

 

Why Now?

 

At an alarming rate, dubious ERC promoters continue to talk businesses into submitting claims because – in their spiel – there is nothing to lose. The IRS has finally taken serious steps to protect those small businesses, sending a very strong unmistakable message to the ERC mills.

 

The freeze was very well received by the CPA profession. The IRS heard from the tax professional community that anecdotally 95% of claims seen in recent months are ineligible. Our TXCPA members have been frustrated, understandably, with the lack of oversight. Many CPA firms lost work to the aggressive ERC shops accepting contingency fees and/or their clients received payments for bad claims that must be rectified.  

 

Pending Applications?

 

The IRS is still processing any ERC claims received prior to Sept. 14, albeit very slowly. There will be additional compliance scrutiny of the remaining claims. Legitimate claims will still be processed but take much longer, 180+ days to process. If a business has a pending claim, the IRS is asking that the claim be reviewed to ensure that it qualifies. See more below.

 

Withdrawal Program

 

The IRS is setting up procedures for a withdrawal program and encouraging all businesses with pending claims to go back and review the claim once again to ensure it is correct. As many of our members have commented in the TXCPA Exchange forum, the IRS specifically listed that supply chain issues as a basis are very rarely eligible. Businesses should reach out to a tax professional. (The IRS urges businesses to avoid seeking guidance from tax promoters or related marketing firms that generate applications for contingency fees.) Under any scenario, if the business has not received payment for a claim and now believes the claim was improper, they should consider withdrawing the claim. This includes cases already under audit or awaiting audit. This will be easier than going through settlement. Watch for more details.

 

Settlement Program Coming Soon

 

This fall, the IRS will also roll out details of a new initiative to help businesses who found themselves victims of aggressive promoters and/or do not qualify. Those businesses that have already received improper claims will need to go through the process of repayment. There may be penalties and interest. The IRS is aware that the statute of limitations has not run out.

 

Haven’t Filed the Claim Yet?

 

If your client or business is about to file a claim:

 

• IRS appeals to businesses to carefully review eligibility guidelines with a trusted tax professional, not an ERC promoter.
• Then, go ahead and file the claim.

 

However, AICPA has indicated that once the moratorium is lifted, there likely will be a completely new process. We do not know what that process will look like yet – it may impact any claims received after the moratorium start date.

 

Bad Actors

 

The IRS is working with the U.S. Justice Department to address fraud in the program as well as promoters or ERC mills that have been ignoring the rules and pushing businesses to apply. Hundreds of criminal cases are being worked and thousands of ERC claims have been referred for audit. In addition, the IRS Criminal Investigations unit has initiated 252 investigations involving more than $2.8 billion potentially false claims, some of which have resulted in federal charges and convictions.  

 

Congressional Action

 

Also on Sept. 14, Assistant Treasury Secretary Adewale Adeyamo issued a letter to Senate Finance Committee Chairman Ron Wyden expressing a potential need for legislation targeting contingent fee practices.

 

IRS ERC Eligibility Checklist

ERC suspended: What happens next - Journal of Accountancy

ERC: Full of Dilemmas for CPAs (icpas.org)