IRS Suspends Processing of New Employee Retention Credit Claims
On September 14, 2023, the Internal Revenue Service (IRS) announced a moratorium on new Employee Retention Credit claims, effective immediately. The pause will continue until at least December 31, 2023. According to the IRS, the decision was made in response to growing concerns 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.”
In its statement, the IRS said it would continue to process pending Employee Retention Credit claims but warned that renewed fraud concerns would increase processing time. The IRS estimates that processing times will increase from 90 days to 180 days, longer if the claim involves additional review or audit.
The Employee Retention Credit is a pandemic-era program that provided a refundable tax credit for businesses that continued paying employees during the Covid-19 pandemic. To receive the credit, businesses needed to meet specific requirements, such as a complete or partial shutdown of operations due to government orders or a significant decline in gross receipts.
On July 26, 2023, the IRS announced that it would be shifting its review to focus on potential compliance concerns, including strengthened audit review and criminal investigations into suspicious claims.
“The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in,” IRS Commissioner Danny Werfel said. “The further we get from the pandemic, the further we see the good intentions of this important program abused. The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants.”
In its statement, the IRS recommended that business owners look to trusted tax professionals for advice and avoid being pressured by promotors who charge a commission fee. Although the IRS is developing new initiatives to help victims of aggressive promoters, businesses that receive fraudulent Employee Retention Credit payments may be required to repay these amounts. Therefore, businesses are urged to exercise the “utmost caution.”
If you have questions about this moratorium or Employee Retention Credit claims or other tax issues, please consult with your accountant or reach out to LP’s Tax Group. If necessary, we would be happy to put you in touch with the appropriate advisor.