Last Updated on September 25, 2023

On September 14, 2023, the Internal Revenue Service (IRS) announced an immediate suspension on the processing of new Employee Retention Credit (ERC) claims until December 31, 2023. This move comes as a response to a significant rise in fraudulent and suspicious claims. The moratorium aims to introduce stronger protective measures against program exploitation and safeguard small businesses from predatory marketing.

Extended Processing Time for Existing Employee Retention Credit Claims

IRS Commissioner Danny Werfel stated that while the program was created to aid businesses during the pandemic, it had unfortunately become a target for fraudsters. Existing claims will still be processed, but there will be an extended review period, pushing the usual 90-day processing time to potentially over 180 days in some instances if a claim faces further review or audit.

New Measures to Protect Business Owners

The issues with the ERC program were brought to light by tax professionals and the media, revealing an unsettling number of illegitimate claims that have not only placed undue risk on businesses but also strained the tax system. Current figures indicate a substantial uptick in criminal investigations into questionable Employee Retention Credit claims, with hundreds of cases in progress and thousands more flagged for audits.

Future Support for Misled Businesses

While the suspension is a move towards curbing fraud, it inevitably means a slower payout process for businesses. As part of the new stringent compliance checks, the IRS may require taxpayers to furnish additional documentation for their claims. Recognizing the challenges faced by businesses, especially those misled by what the IRS deemed as aggressive promoters, the IRS plans to introduce a settlement program in the fall. This program will allow businesses to repay improper ERC payments without incurring penalties. A special provision will also be available for businesses to withdraw unprocessed claims, safeguarding them from future complications and hefty contingency fees.

Promoting Vigilance and Awareness

The ERC program, initiated during the pandemic, was crafted to support businesses that maintained their workforce during the disruptions between March 13, 2020, and December 31, 2021. With the evolving landscape of claims, Commissioner Werfel emphasized the importance of understanding eligibility requirements. He introduced a new question and answer guide for businesses and urged them to rely on trusted tax professionals rather than marketers seeking large fees.

Fraudulent Employee Retention Credit Claims Lead To Increased Audits

Concludingly, Werfel pinpointed the broader impact of these fraudulent schemes stating they inadvertently delay genuine claims and exert undue pressure on the tax system, affecting all taxpayers. With the IRS’s Criminal Investigation division already uncovering fraud activities totaling over $8 billion and initiating 252 probes related to ERC claim frauds, this moratorium signals a determined effort to restore the integrity of the relief program and protect businesses from potential scams. The overarching message from Werfel is that businesses should be vigilant, well-informed, and wary of too-good-to-be-true promotions.

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