Employee Retention Credit (ERC) Claims: Important Update for Business Owners
Employee Retention Credit (ERC) Claims: Important Update for Business Owners
September 29, 2023

As of Sept. 14, 2023, the Internal Revenue Service (IRS) announced an immediate halt to the processing of new claims for the Employee Retention Credit (ERC) program. This decision is effective until at least the end of the current year. It comes in response to a significant influx of questionable ERC claims.

Why the IRS has Stopped Processing ERC’s:

The IRS has raised serious concerns about scams targeting honest small business owners. Reports suggest that many businesses, influenced by what the IRS termed aggressive marketing tactics, are applying for credits they’re not eligible for. Such questionable claims endanger businesses’ financial stability and put undue strain on the tax system. The intention behind this moratorium is to protect businesses and the integrity of the tax system from predatory tactics and fraudulent claims.

The IRS’s increasing focus on reviewing these claims for compliance has led to a substantial number of audits and criminal investigations. Their collaboration with the Justice Department aims to address and reduce the number of fraudulent claims and to tackle promoters pushing businesses toward such actions.

What This Means for Business Owners:

Based on what we know right now, here is how this halt might affect you as a small business owner:

  • Previous Claims: Expect delays if you’ve already filed for the ERC. The IRS will continue reviewing claims made before the halt, but the increased scrutiny means that the processing time could stretch from the regular 90 days to 180 days or even longer.
  • Payments: Even though reviews are ongoing, claim payouts will continue during the moratorium. However, they’ll be slower due to rigorous compliance checks.
  • Increased Scrutiny: With a shift toward intensified audit work, existing ERC claims might undergo stricter reviews. Processing times will be extended if your claim requires further inspection or an audit. To verify the legitimacy of your claim, the IRS could request additional documentation.
  • Potential Repayment: If you’ve improperly claimed the ERC, you will need to repay it, which could include added penalties and interest.

When Will More Information be Available:

The IRS has said they will provide more details on various initiatives in the upcoming fall season—including more information on the settlement program, allowing businesses to repay any mistakenly received ERC funds without incurring penalties.

What Are the Next Steps for Small Business Owners:

  • Review Your Status: If you’re considering applying for the ERC, carefully review the program’s guidelines during this moratorium period. Consult a trusted tax professional—preferably not looking for hefty application fees—to understand the intricate ERC rules.
  • Use Available Resources: The IRS has released a new question-and-answer guide. This tool can assist businesses in determining their eligibility for the credit. You can access the guide on the IRS website here.
  • Consider Withdrawing if Necessary: If you’ve already filed a claim and are awaiting processing but believe it might have been submitted in error, you’ll soon have the option to withdraw it. This step might help you avoid potential complications with the IRS.
  • Stay Updated: With investigations and reforms underway, business owners must stay informed about any new developments regarding the ERC. A proactive approach will help you make informed decisions, ensuring your business remains compliant and protected.

This moratorium underscores the need for businesses to be vigilant and informed. In times of crisis, while relief measures like the ERC are invaluable, they can also become fertile ground for scams and misinformation. Ensure your business is protected from these threats by staying informed and seeking advice from trusted professionals.

Treasury Circular 230 Disclosure

Unless expressly stated otherwise, any federal tax advice contained in this communication is not intended or written to be used, and cannot be used or relied upon, for the purpose of avoiding penalties under the Internal Revenue Code, or for promoting, marketing, or recommending any transaction or matter addressed herein.

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