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IRS orders immediate stop to new Employee Retention Credit processing amid surge of questionable claims.

Amid rising concerns about a flood of improper Employee Retention Credit claims, the Internal Revenue Service announced an immediate moratorium beginning 9/14/2023 through at least December 31, 2023 on processing new claims for the pandemic-era relief program to protect honest small business owners from scams. This will allow IRS to add more safeguards to prevent future abuse and protect businesses from predatory tactics. The IRS is working with the Justice Department to pursue fraud fueled by aggressive marketing.

The IRS continues to work previously filed ERC claims but renewed a reminder that processing times will be longer. The IRS announced also that hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit. ERC claims will go from a standard processing goal of 90 days to 180 days and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure it is a legitimate claim.

The IRS created a Special Eligibility Checklist that provides a quick, high-level way for employers to figure out if they might qualify to claim the ERC or if they potentially need to resolve an improper claim. Given that some small businesses may have been misled by aggressive promoters, this checklist is an important reference tool to use along with checking with a trusted tax professional.

The IRS is developing new initiatives to help businesses who found themselves victims of aggressive promoters. This includes a settlement program for repayments for those who received an improper ERC payment. The IRS will have a special withdrawal option for those who have filed an ERC claim but the claim has not been processed. This option, which can be used by taxpayers whose claim hasn’t yet been paid, will allow taxpayers to avoid possible repayment issues and paying promoters contingency fees. Currently there are more than 600,000 claims awaiting processing and which will have this option available. Those who have willfully filed fraudulent claims or conspired to do so should be aware, however, that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.

IRS Criminal Investigation (IRS-CI) has uncovered suspected pandemic fraud totaling more than $8 billion. As of July 31, 2023, IRS-CI has initiated 252 investigations involving over $2.8 billion of potentially fraudulent Employee Retention Credit claims. Of those, fifteen of the 252 investigations have resulted in federal charges. Of the 15 federally charged cases, so far six matters have resulted in convictions, four of those cases have reached the sentencing phase with the average sentence being 21 months.

The IRS reminds anyone who improperly claims the ERC that they must pay it back, possibly with penalties and interest. A business could find itself in a much worse financial position if it has to pay back the credit than if the credit was never claimed in the first place. Taxpayers should take particular precautions because a promoter can collect a contingency fee of up to 25% of the ERC refund.