IRS to Halt ERC Processing

The IRS issued a moratorium on processing new Employee Retention Credit (“ERC”) claims due to evidence suggesting a growing number of improper claims being filed. The moratorium began on September 14, 2023, and is effective until, at least, December 31, 2023. Our firm has since been inundated with questions and concerns as to how this affects businesses who have claimed the credit and are waiting for payment, as well as businesses who claimed the credit and have already received payment. And rightly so, as the complex nature of the credit and limited guidance has led to confusion amongst all players, and the latest adds yet another wrinkle.

What does the moratorium mean?

The moratorium simply means the IRS will not process claims received after the effective date (September 14, 2023) until the moratorium concludes (currently set for December 31, 2023). Claims filed during this period will not be reviewed until the moratorium has been lifted.

In July, the IRS announced it shifted its focus on ERC claims to be compliance-driven. The moratorium piggybacks on that new focus by further increasing the level of review each claim is subjected to. Stricter reviews on the front end mean longer wait times overall. The moratorium brought with it an increased standard processing goal of 180 days – up from the 90 days it was before. In other words, the IRS’s goal is to process a claim within 180 days of it being made, instead of within 90. Thus, if you have a claim outstanding, or are planning on filing a claim, the wait likely just got longer.

Does this mean the ERC is fraudulent?

No, the ERC is a part of the Internal Revenue Code. That the IRS instituted this moratorium does not mean that all ERC claims are fraudulent. In fact, the opposite is true. The moratorium is intended to give the IRS time to devise procedures to assist them in identifying proper claims from improper claims.

Another goal the IRS identified was the establishment of programs for employers who fell victim to third-party scammers to potentially avoid penalties. While no concrete details have emerged, the programs will likely allow those with pending claims to withdraw said claims without penalty. Additionally, the IRS is looking into programs where employers who made improper claims may voluntarily pay those funds back with limited penalties.

My business received payment for ERC claims, do I need to give it back?

Whether or not an employer who receives funds for an ERC claim will eventually be required to repay those funds depends entirely on whether that employer had a legitimate basis for their claim. Employers who properly qualify for the credit are unlikely to be required to pay those funds back. On the other hand, employers who made improper claims may want to wait before spending any payments received.

Additionally, employers who made ERC claims via third-party preparers may want to take a second pass through their claim, and the basis for making it. New procedures may assist the IRS in identifying which claims were improper, increasing the risk of an audit of these claims. The IRS issued a checklist alongside the moratorium announcement to assist employers in determining their qualifications. In reviewing their claims, employers should utilize the checklist to ensure their business qualifies.

Are pending claims still being processed?

Yes. If an employer had made a claim prior to the moratorium, it will still be actively processed during the moratorium period. The IRS will still be approving and paying claims that were submitted prior to the moratorium. However, these claims will likely be subject to the increased processing goals discussed above. Luckily though, the IRS pays interest for the period of time spent conducting this additional review.