On September 14, the IRS announced an immediate moratorium through at least the end of the year on processing new claims for the Employee Retention Credit (ERC). This pause comes amid rising concerns about a flood of improper ERC claims filed by promotors who engage in aggressive marketing tactics to ineligible applicants that are said to provide an “unacceptable risk to businesses and the tax system.”

The moratorium will run through at least Dec. 31, 2023 due to growing concerns from inside the IRS, from tax professionals as well as from media reports that a substantial share of new claims are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promotors.

The IRS will continue to process ERC claims received prior to the moratorium but has noted that processing times will be longer. The IRS is shifting more of its focus toward reviewing these claims for compliance and intensifying audit work and criminal investigation on ERC promotors. ERC refunds will still be issued during this moratorium for previously filed claims but will undergo a more rigorous review process in an attempt to weed out improper claims. The stricter compliance reviews are expected to increase the standard processing goal of 90 days up to 180 days, and potentially longer if the claim faces additional review or audit. Further, the IRS may request additional documentation to substantiate a claim before it is processed.

The enhanced review process is intended to protect the IRS against fraud, but also to protect businesses from facing penalties or interest that may result from improperly filed claims pushed by unscrupulous promotors.

The IRS is developing new initiatives to help businesses that fell victim to aggressive promotors and may have filed bad claims. This includes a settlement program for repayments of ERC refunds that were improperly received. Details on this program will be available later this fall. Additionally, the IRS is finalizing details on a program that will allow businesses to revoke currently filed claims that have not yet been processed. This program will allow businesses to avoid repayment issues and may avoid the obligation to pay promotors contingency fees. More details related to these programs will be discussed once available.

At this stage, the IRS is making the following recommendations:

• Ensure substantiation for filed claims is in order: For businesses that are currently awaiting an ERC claim, the IRS will continue to process these claims at a reduced speed. The IRS may request additional documentation to ensure the validity of a claim.
• Review ERC rules and associated guidance before filing a claim: Businesses that have not filed a claim should work with a trusted tax professional — not an unscrupulous promotor or marketing firm charging significant contingency fees.
• Withdraw a pending claim: Businesses that have a claim pending should review their eligibility and determine whether they should take advantage of the claim withdrawal program that will be rolled out in the near future.
• Utilize the IRS ERC settlement program: A business that has already received a refund it now believes may have been improperly claimed should take advantage of the upcoming repayment program. Eligibility should be reviewed by a trusted tax professional.

The Employee Retention Credit is complex and nuanced. If you have questions about the ERC or its impact on your business, please contact GHJ’s Tax Services Team.