IRS Orders an Immediate Stop to New Employee Retention Tax Credit Processing

September 21, 2023

After receiving a deluge of improper Employee Retention Tax Credit (ERTC) claims, the IRS recently announced an immediate moratorium through at least December 31 on processing new claims for the pandemic relief program. The tax agency stated that the move was made “to protect honest small business owners from scams” and to safeguard the tax system from fraud.

The Basics of the ERTC

When properly claimed, the Employee Retention Tax Credit (ERTC) is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic. The complex credit isn’t available to individuals.

The IRS reports it has received approximately 3.6 million claims over the course of the program.

The credit has precise requirements. Employers can claim the ERTC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have:

  • Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings because of COVID-19 during 2020 or the first three quarters of 2021,
  • Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
  • Qualified as a recovery startup business for the third or fourth quarters of 2021.

Aggressive Marketing

IRS Commissioner Danny Werfel ordered the moratorium following growing concerns from inside the tax agency and from tax professionals that a substantial share of new claims from the program are ineligible. In addition, the IRS stated that businesses are increasingly being put “at financial risk by being pressured and scammed by aggressive promoters and marketing.”

You may have seen TV commercials and billboards encouraging businesses to claim the credit. Or you may have received unsolicited calls or text messages mentioning an “easy application process.” In some cases, promoters make statements that they can determine ERTC eligibility within minutes. These promoters may charge large upfront fees to claim the credit on amended returns or charge fees based on a percentage of the refund amount.

The IRS reminds anyone who improperly claims the ERTC that they must pay the money back, possibly with penalties and interest. “A business or tax-exempt group 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,” the tax agency stated.

IRS “Intensifying” Audits

The IRS continues to work on previously filed ERTC claims that it received prior to the moratorium, but renewed a reminder that increased fraud concerns means processing times will take longer. Previously, the IRS announced that it was “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 tax agency added that hundreds of criminal cases are being investigated and thousands of claims have been referred for audit.

Possible Help for Victims

The IRS also announced it is developing new initiatives to help businesses who find themselves victims of aggressive promoters. For example, a business can withdraw an existing claim that has already been filed. There are also plans for a settlement program that involves repayments from those who received improper ERC payments. More details will be announced this fall.

Of course, there’s nothing wrong with claiming legitimate credits to which you’re entitled. The continuing ERTC initiatives from the IRS are targeting unscrupulous promoters who are submitting questionable and fraudulent claims on behalf of businesses. For more information from the IRS, click here¬†and here. If you have questions or concerns about the ERTC, contact your CPA.