IRS Puts Temporary Hold On New ERC Claims

September 15, 2023

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Key Takeaways

  • The IRS announced the temporary stoppage of processing for new Employee Retention Credit claims.
  • The reasoning stems from an increase of new claims being ineligible due to ERC scammers pushing businesses to file.
  • Current filings will continue to be processed, but the IRS expects longer processing times.

The IRS recently announced a temporary stop on the processing of new Employee Retention Credit (ERC) claims, citing an increasing number of new claims being ineligible. This is due to the fact that many businesses are being pressured by ERC “scammers” (or “ERC mills”) to file dubious claims.

The processing moratorium on new claims will last at least through the end of 2023, perhaps longer.

Current filings will continue to be processed, but the IRS expects processing times will lengthen due to high volumes and increased scrutiny.

What is the ERC?

The ERC is a tax credit for employers who continued to pay their employees during the COVID-19 pandemic. In order to qualify for the ERC, organizations had to experience:

  1. A significant decline of gross receipts (i.e., revenue); or
  2. Demonstrate a government-mandated full or partial suspension of their operations.

Further criteria must also be met in order to qualify for the ERC.

What is the issue with the new ERC claims?

This additional eligibility criteria is what the so-called “ERC mills” often overlook. As a result, many ERC mills are qualifying nearly every business they work with, costing taxpayers billions of dollars in potentially erroneous ERC claims.

The IRS will apply an “enhanced compliance review” on claims going forward in an effort to better protect organizations and to catch ineligible and dubious claims. The IRS has already initiated investigations involving more than $2.8 billion of potentially fraudulent ERC claims.

What happens next with ERC claims?

For organizations that have already filed for the ERC, the IRS will continue to review claims and issue refunds providing all requirements are met. This process, however, will take longer as the IRS will spend more time reviewing each claim.

Organizations that haven’t submitted an ERC claim yet can still do so by filing amended payroll tax returns, but the IRS will not process these new claims until after January 1, 2024. While this isn’t good news for organizations with legitimate ERC claims, it’s a step the IRS feels is necessary in order to prevent erroneous ERC claims.

For organizations falling victim to an overly aggressive ERC provider, the IRS plans to develop a settlement program allowing taxpayers to repay the ERC and avoid penalties. These organizations are encouraged to wait for future IRS guidance and apply for the program once it becomes available this fall.

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