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Tax Credits and Incentives

Werfel Stops New Employee Retention Credit Processing Amid Surge of Questionable Claims

Thomson Reuters Tax & Accounting  

· 5 minute read

Thomson Reuters Tax & Accounting  

· 5 minute read

The IRS has announced an immediate moratorium on processing new Employee Retention Credit (ERC) claims through at least the end of the year. This decision comes amid rising concerns about a flood of improper claims, putting honest small business owners at financial risk from scams. (IR 2023-169, 9/14/2023)

IRS Commissioner Danny Werfel ordered the immediate moratorium to run through at least December 31 after receiving reports, from tax professionals and others, that a substantial share of new ERC claims are ineligible.

The IRS will continue to work on previously filed ERC claims received before the moratorium. However, processing times will be longer due to more detailed compliance reviews. According to the News Release, IRS processing times for ERC claims will increase from 90 days to 180 days—and much longer if the claim faces further review or audit.

This enhanced compliance review of claims submitted before the moratorium is critical to protect against fraud but also to protect the businesses from facing penalties or interest payments stemming from bad claims pushed by promoters, Werfel said.

The IRS is also developing new initiatives to help businesses who found themselves victims of aggressive promoters. This includes a settlement program for those who received an improper ERC payment. The IRS expects to provide more details soon. In addition, the IRS is finalizing details on a special withdrawal option for those who wish to withdraw a filed ERC claim that has not yet been processed.

The IRS is working with the Justice Department to address fraud in the ERC program including promoters who have been ignoring the rules and pushing businesses to apply. The IRS has specially trained auditors examining ERC claims posing the greatest risk, and the IRS Criminal Investigation division is actively working to identify fraud and promoters of fraudulent claims for potential referral for prosecution to the Justice Department. According to the News Release, the IRS is already working hundreds of criminal cases and thousands of ERC claims have been referred for audit.

Taxpayers are encouraged to review the guidance and tools the IRS has available to determine their ERC eligibility before claiming the credit.

For more information about the Employee Retention Credit, see Checkpoint’s Federal Tax Coordinator FTC 2d/FIN ¶ H-4687.5.

 

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