IRS Suspends Employee Retention Credit Claims Processing

The IRS has suspended processing of Employee Retention Credit claims at least through the end of 2023 amid a surge in what the agency calls “improper claims.”

Intended to prevent layoffs during the early months of the COVID-19 pandemic, the tax relief program was targeted by third parties that aggressively promoted questionable schemes.

In a Sept. 14 statement, agency officials said “a substantial share of new claims from the aging program are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.”

“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.”

Existing Claims

While the IRS will process claims filed prior to the moratorium, it warned that processing times will increase significantly.

“The IRS emphasizes that payouts for these claims will continue during the moratorium period but at a slower pace due to the detailed compliance reviews,” the agency said.

“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.

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 may also seek additional documentation from the taxpayer to ensure it is a legitimate claim.”

Earlier this year, the agency announced a shift in focus to addressing compliance concerns, including ramping up audits and criminal investigations.

Officials said hundreds of criminal cases are being investigated, while thousands of claims were referred for audit.

New Warning

The agency also issued a new warning about ERC marketing schemes, urging businesses “to watch out for red flags that can signal trouble.”

“The IRS reminds anyone who improperly claims the ERC that they must pay it back, possibly with penalties and interest,” officials said in a Sept. 14 statement.

To protect taxpayers from scams, #IRS has stopped new Employee Retention Credit processing amid surge of questionable claims. Learn about the #ERC moratorium at: https://t.co/e5Q1lcr6DN pic.twitter.com/cNxYomDnie

— IRSnews (@IRSnews) September 14, 2023

“A business or tax-exempt group could find itself in a much worse cash position if it has to pay back the credit than if the credit was never claimed in the first place.

“This underscores the importance of taxpayers taking precautionary steps and avoiding being pushed by a promoter, including instances where a promoter can collect contingency fees as much as 25%.”

Red Flags

IRS officials shared a list of warning signs for employers about ERC promotions: 

• Unsolicited calls or advertisements mentioning an “easy application process”
• Statements that the promoter or company can determine ERC eligibility within minutes
• Large upfront fees to claim the credit
• Fees based on a percentage of the ERC refund amount 
• Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group’s tax situation

Employers who use these companies could be at risk of someone using the credit as a ploy to steal the taxpayer’s identity or take a cut of an improperly claimed credit.

Businesses can report ERC abuse by completing Form 14242, Report Suspected Abusive Tax Promotions or Preparers.