IRS halts new employment retention credit claims through end of year

The Internal Revenue Service late this week announced a moratorium at least through the end of this year on processing new claims for a pandemic-era relief program so it can protect small business owners from scams.

The employee retention credit, or ERC, was created to support small businesses during the COVID-19 pandemic. It can be worth thousands of dollars per employee and has sparked a flood of specialist firms falsely promising businesses they qualify for the complicated tax break.

“The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in,” IRS Commissioner Danny Werfel said. “The further we get from the pandemic, the further we see the good intentions of this important program abused. The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants.”

The IRS has received approximately 3.6 million claims over the course of the program and the current open inventory has more than 600,000 claims, most of which have been received over the past 90 days. The agency continues to work on ERC claims received before the moratorium but said fraud concerns mean processing times will be longer.

The IRS emphasizes that payouts for these claims will continue during the moratorium period but at a slower pace because of the detailed compliance reviews. With the stricter compliance reviews in place during this period, existing 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 also may seek additional documentation from the taxpayer to ensure it is a legitimate claim.

“For those people being pressured by promoters to apply for the Employee Retention Credit, I urge them to immediately pause and review their situation while we look to add new protections and safeguards to stop bad claims from ever coming in,” Werfel said. “In the meantime, businesses should seek out a trusted tax professional who actually understands the complex ERC rules, not a promoter or marketer hustling to get a hefty contingency fee. Businesses that receive ERC payments improperly face the daunting prospect of paying those back, so we urge the utmost caution.”

Related: 2-year delay! IRS extends that looming SECURE 2.0 catch-up contribution deadline

Taxpayers are encouraged to review IRS guidance and tools for helping determine ERC eligibility, including frequently asked questions and a new question and answer guide to help businesses understand if they are actually eligible for the credit.