In a timely turn of events, following our presentation on the Employee Retention Credit (ERC) on September 13, the IRS issued IR-2023-169 dated September 14, 2023 and has temporarily suspended processing all new Employee Retention Credit claims through December 31, 2023.

Behind the IRS's Decision

Why has the IRS paused processing new ERC claims? Because of the barrage of improper claims submitted and supported by aggressive promoters.

The IRS Commissioner, Daniel Werfel, said in a statement: “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. 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 said that its criminal division had initiated 252 investigations through the end of July, which put more than $2.8 billion of potentially fraudulent ERC claims under scrutiny.

In addition to this moratorium, the IRS is also establishing a special withdrawal option for the 600,000 claims that have been filed but not yet processed. This option will be available for use by taxpayers whose claim hasn't yet been paid and will allow those taxpayers (many of which are small businesses who were misled by promoters) to avoid possible repayment issues and/or paying the promoter's contingency fees.

Options and Advice for Taxpayers

The IRS's advice to taxpayers during this time depends on where they are in the process:

Taxpayers waiting on an ERC claim:

• The claims will continue to be processed but at a reduced speed due to the complex nature of these filings. If you're confident in your claim, be patient with the process!
• Consider withdrawing an existing (pending) claim that has already been filed: Call your trusted tax professional to review the program guidelines and determine if your claim meets the proper eligibility criteria. One improper eligibility example the IRS has seen repeated instances of is people improperly citing supply chain issues as a basis for a claim, which rarely meets the eligibility criteria. Under any scenario, if a claim is pending and has not been paid or processed by the IRS, the taxpayer can withdraw the claim now if they believe it was submitted improperly. More details will come on this.

For those who haven't filed a claim:

• Consider reviewing the guidelines and waiting to file. Talk to your trusted tax professional to ensure your understanding of the eligibility requirements!

For those who have filed and received their claim that they now believe may be an error:

• The IRS will be providing additional details on a settlement program in the fall. This settlement program will allow businesses to repay ERC claims and avoid penalties and future compliance action. The IRS is ironing out the details of how to handle situations where the taxpayer paid a promoter contingency fee.

The Importance of a Trusted Tax Professional

The IRS and Delap agree, "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. The moratorium will help protect taxpayers by adding a new safety net onto this program to focus on fraudulent claims and scammers taking advantage of honest taxpayers.”

Reach out to our experts Jill Tichenor at 971.327.4746 or Harriet Strothers at 971.327.4750 to help evaluate your situation and discuss your options. Give them a call at the phone numbers above or use the form below.

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