If you’re a business owner who has filed an unprocessed claim for Employee Retention Credits, or you’re thinking about filing a claim, you’ll want to read up on this latest update on the ERC program.
The IRS recently announced an immediate ERC moratorium on new claim processing through January 2024. The moratorium, ordered by IRS Commissioner Danny Werfel, went into effect on September 14, 2023, and placed a hold on processing any new ERC claims until at least January 1, 2024.
The moratorium comes after several notices issued by the IRS over the past year warning taxpayers against unscrupulous third-party ERC promoters. These aggressive ERC mills have run rampant since the program’s introduction as part of the CARES Act in March 2020, with many promoters leading unsuspecting taxpayers to file ERC claims for credits that often they are not even eligible for in the first place.
After seeing a flood of fraudulent ERC claims since the rise of these scams, the IRS has decided to place the moratorium on ERC processing as an attempt to protect innocent taxpayers from falling victim to these scams.
So, what does this moratorium mean for you and your business? Let’s delve into the highlights:
ERC Moratorium Until at Least January of 2024
While you can still file new ERC claims during this time, you will likely not see a refund check in the mail until at least January of next year.
More Time to Review Claims = More ERC Audits
The slew of IRS ERC audits isn’t going to slow down anytime soon, and in fact it may just be getting started. The pause on new ERC claims gives the IRS more time to investigate existing claims, and if your claim hasn’t been processed already, you should be wary of a potential audit, or at the very least, the agency requesting additional documentation from you regarding your claim.
IRS hints at ERC Voluntary Disclosure Program
The notice outlines that taxpayers who have already filed an ERC claim that has yet to be processed or paid out by the IRS will now have the option to withdraw the claim, even if your claim was under or awaiting an audit. This is potentially a signal that the IRS may be more forgiving with taxpayers who were victims of aggressive ERC promoters. The IRS announced that more specific details on this process will come later.
An IRS ERC Settlement Program is in the works
If you’ve already received an ERC refund that you may not have been fully entitled to, more information on a settlement program will be released in the fall that will allow businesses to repay ERC claims in order to avoid penalties and future compliance action. With this, the IRS is also assessing options on how to deal with promoter contingency fees.
IRS Continues Crackdown on Supply Chain Arguments
One of the assertions that unscrupulous ERC promoters often make is that any business that experienced supply chain disruptions and lost money due to the pandemic can file an ERC claim and receive a retroactive tax credit. While supply chain disruption may play a part in your ERC eligibility, it’s not as simple as these ERC promoters might make it seem.
The notice and updated FAQ issued by the IRS doubles down on their assertion that the agency views supply chain arguments as a very limited exception as a sole reason for eligibility, omitting supply chain arguments from their list of eligible circumstances.
Why is the ERC Moratorium Being Put in Place?
The IRS Commissioner claims that the extra review time allowed for existing claims filed prior to the moratorium will be a vital part of protecting the system against fraud. So far the ERC program has received nearly 3.6 million claims since its inception, and the notice from the IRS states that tax professionals have noted instances where 95% or more of claims coming in recent months were ineligible.
The IRS has a backlog of over 600,000 claims to comb through, and the moratorium will give the agency time to accurately ensure claims are eligible for credits prior to issuing refunds.
Where should Businesses go from here?
The notice issued by the IRS offers several pieces of advice for businesses potentially facing a fraudulent ERC claim, but arguably the most important advice relayed by IRS Commissioner Werfel was that businesses “should seek out a trusted tax professional who actually understands the complex ERC rules…”
Get a Second Opinion from our Expert Tax Attorneys
At Wiggam Law, our team prides ourselves on being a leading authority on ERC audits. The situation around ERC has been constantly evolving ever since the program’s introduction, and our firm has been following the twists and turns since day one.
From helping businesses during the pandemic assess their eligibility for ERC to now offering expert analysis and advice to clients who followed the lead of a unscrupulous ERC promoter while filing their claim, we’ve been on the front lines of this ERC fiasco the entire time, and we are here to help you through the worst case scenario.
If you’ve filed an ERC claim that has yet to be processed, whether or not you may have been targeted by a fraudulent ERC promoter, the time to seek a second opinion on your eligibility is now.
Our team of expert tax attorneys can analyze your ERC claim, determine your risk of getting caught up in the incoming wave of audits, and guide you through the next steps to take as the IRS continues to develop new paths for resolution.