The IRS has announced an immediate moratorium on processing claims for the employee retention credit (ERC) filed on or after Sept. 14, 2023, and it will last at least through the end of 2023. The announcement comes as the IRS ramps up enforcement action and prepares to launch a settlement offer that would allow taxpayers to withdraw or repay improper claims.
The IRS said a rising share of claims are ineligible and driven by aggressive and fraudulent promoters, which is putting businesses at financial risk. The IRS emphasized that anyone who improperly claims the ERC would have to pay it back, possibly with penalties and interest.
The IRS will continue to process the more than 600,000 pending claims that were received prior to the moratorium, but at a slower pace due to more detailed compliance reviews of the claims. The IRS anticipates that existing ERC claims will go from a standard processing goal of 90 days to 180 days—and much longer if a claim faces further review or audit. The IRS may also seek additional documentation from a taxpayer to ensure a particular claim is legitimate. To date, the IRS is working hundreds of criminal ERC fraud cases and has referred thousands of ERC claims for audit.
The IRS also announced that it is developing new initiatives to help businesses who find themselves victims of aggressive promoters, including a potential settlement program for repayments for those who received an improper ERC payment. No details are yet available, but this potential settlement option could allow certain businesses to avoid penalties and future compliance actions. The IRS said it is continuing to assess options for how to deal with businesses that had a promoter contingency fee paid for out of the ERC payment. In addition, the IRS is finalizing details about a special withdrawal option for those who have filed an ERC claim but the claim has not been processed. This option may allow certain businesses to avoid possible repayment issues and promoter contingency fees. The IRS indicated that more details regarding these initiatives will be forthcoming this fall.
The IRS emphasized that the ERC is an incredibly complex credit, and there are very specific eligibility requirements. The IRS also urged businesses to consult with a trusted tax professional who actually understands the complex ERC rules, and not a promoter or marketer working on an aggressive contingency fee.
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