IRS Pauses Processing of New ERC Claims

By Joe Kristan, CPA
September 14, 2023

The IRS this afternoon announced a moratorium on processing new claims for the Employee Retention Credit:

Amid rising concerns about a flood of improper Employee Retention Credit claims, the Internal Revenue Service today announced an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program to protect honest small business owners from scams.

IRS Commissioner Danny Werfel ordered the immediate moratorium, beginning today, to run through at least Dec. 31 following growing concerns inside the tax agency, from tax professionals as well as media reports that a substantial share of new claims from the aging program are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.

The IRS continues to work previously filed Employee Retention Credit (ERC) claims received prior to the moratorium but renewed a reminder that increased fraud concerns means processing times will be longer. On July 26, the agency announced it was increasingly shifting its focus to review these claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS announced today that hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.

Eide Bailly's Tonya Rule, co-leader of the firm's ERC practice, comments:

A few bad apples have ruined it for the bunch.  Unfortunately, ERC mills have taken advantage of the lack of information that needs to be entered on a 941x to claim the ERC.  The IRS’s only option now is to slow down their reviewing process, understand what to look for and vet out the wrong refunds.  It’s too bad this is costing Taxpayers who need and deserve the ERC to have to wait.

The IRS issued an additional press release, Red flags for Employee Retention Credit claims; IRS reminds businesses to watch out for warning signs of aggressive promotion that can mislead people into making improper ERC claims. It has important information on ERC scams, including this list of warning signs:

-Unsolicited calls or advertisements mentioning an "easy application process."
-Statements that the promoter or company can determine ERC eligibility within minutes.
-Large upfront fees to claim the credit.
-Fees based on a percentage of the refund amount of Employee Retention Credit claimed. This is a similar warning sign for average taxpayers, who should always avoid a tax preparer basing their fee on the size of the refund.
-Preparers seeking anonymity by refusing to sign the ERC return being filed by the business as well as supplying their identifying information and a tax identification number. Similar to "ghost preparers," this limits the risk to just the taxpayer claiming the credit.
-Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group's tax situation. In reality, the Employee Retention Credit is a complex credit that requires careful review before applying.

Additional coverage from the Wall Street Journal: IRS Shuts Door on New Pandemic Tax Credit Claims Until at Least 2024.

Look for full coverage in our Tax News & Views roundup tomorrow morning. 

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