September 18, 2023

Last week, the Internal Revenue Service (IRS) announced an immediate moratorium on the processing of all new Employee Retention Credit (ERC) claims. The stoppage will allow the agency will issue new safeguards to address abuse and protect businesses from predatory tactics. The IRS is also working with the Justice Department to pursue fraud resulting from predatory marketing.

Current claims will continue to be processed 

The moratorium will remain in place at least through the end of 2023 amid a surge of questionable claims, aggressive marketing tactics, and concerns from tax professionals. ERC claims filed prior to the moratorium will still be processed, but at a slower pace due to detailed compliance reviews. The enhanced compliance reviews aim to safeguard taxpayers from fraud, but also to protect businesses from facing penalties or interest payments stemming from bad claims pushed by promoters.

Options for pending ERC applications 

Businesses who already filed an ERC claim or intended to file one this year have a few options.

  1. For those who have not filed a claim yet, consider reviewing the guidelines and waiting to file. For those considering filing a claim, the IRS urges businesses to carefully review the ERC guidelines during the processing moratorium period. The IRS urges businesses to talk to a trusted tax professional – not a tax promoter or marketing firm who earn a commission from the ERC claim. Businesses are urged to review the new ERC eligibility checklist. Many businesses do not qualify for the ERC, and avoiding a bad claim will avoid complications with the IRS.
  2. Businesses can withdraw an existing claim. For those who have filed and have a pending claim, they should carefully review the program guidelines with a trusted tax professional and consult the new checklist. For example, the IRS is seeing repeated instances of people improperly citing supply chain issues as a basis for an ERC claim, but a business with those issues will very rarely meet the eligibility criteria. Under any scenario, if a business claimed the ERC earlier and the claim has not been processed or paid by the IRS, they can withdraw the claim if they now believe it was submitted improperly – even if their case is already under audit or awaiting audit. More details will be available shortly.
  3. Businesses can wait for the IRS ERC settlement program to be finalized. If a business has already received an ERC that they now believe is in error, the IRS will be providing additional details on the settlement program this fall that will allow businesses to repay ERC claims. The settlement program will allow these businesses to avoid penalties and future compliance action. The IRS is continuing to assess options for how to deal with businesses that had a promoter contingency fee paid for out of the ERC payment.

Next Steps 

If your business is considering an ERC claim or has previously filed one, review the ERC Eligibility Checklist carefully to determine whether to file, withdraw or wait for the announcement of the settle program. If you have any questions about an ERC claim, contact GRF’s tax team.