Update as of 10.3.2023:
Apparently, the whole country, including the House Ways and Means Committee, wants answers regarding the IRS’s moratorium announcement. The committee published a letter to the IRS Commissioner Daniel Werfel calling out the actions of the IRS in regard to how it has handled the ERC processing and what it is going to do going forward to fix their issues.
The COVID-19 pandemic has presented unparalleled challenges to businesses globally. In response, the U.S. government introduced various relief measures, including the Employee Retention Credit (ERC), aimed at encouraging employers to continue paying their employees, even in challenging circumstances.
However, the ERC program has been plagued by controversy , with the IRS expressing concerns about substantial fraud due to aggressive marketing tactics employed by entities known as “ERC Mills” and promoters who pressurize taxpayers into making improper claims. Like many other government programs of its scale, the ERC was susceptible to potential misuse.
To address the mounting apprehensions regarding fraud within the ERC program, the IRS made a significant announcement on September 14, 2023. IRS Commissioner Danny Werfel stated that an “immediate moratorium, beginning today, [would] run through at least Dec. 31 following growing concerns.” This announcement also included various measures under the banner of “help protect taxpayers.” However, the true significance of this announcement and its implications for employers has led to several misconceptions.
Let’s delve into the details of the IRS Employee Retention Credit (ERC) announcement to gain a clearer understanding:
1. Moratorium: Effective immediately, the IRS placed a moratorium on processing new ERC claims that had not already been submitted, with this pause set to continue until at least January 2024. The announcement left some questions unanswered, such as whether claims postmarked before September 14th would be considered submitted. It’s important to note that the typical acknowledgment of an ERC claim submission by the IRS takes about four months on average. Therefore, the moratorium essentially aligns with the existing processing timeline.
2. Extended Processing Times: The IRS has extended the standard processing goal for existing ERC claims from 90 to 180 days, with the possibility of further delays due to reviews or audits. Notably, most taxpayers have already experienced close to 180 days of processing time, implying that this new target of 180 days might mean almost a year’s delay before receiving entitled funds.
3. Additional Documentation: The IRS may request supplementary documentation from taxpayers to verify legitimate claims, strengthening compliance. Over the past two years, the IRS has modified its protocol several times to require documentation that was previously unnecessary. This move is not a novel development but rather a clarification of the existing process.
4. Continued Payouts: During the moratorium, payments for existing claims will persist, albeit at a slower pace due to meticulous compliance reviews. Payouts under the ERC program have been inconsistent, with some claims taking more than two years for funds to be audited and released to deserving recipients.
5. Enhanced Oversight: Recognizing the potential for fraud, the IRS has dedicated additional resources to conduct more thorough audits and reviews of ERC claims. The primary focus is on high-risk areas, including businesses that may have claimed the credit for wages paid to family members or related parties. This heightened scrutiny aims to discourage fraudulent claims.
6. Outreach and Education: To mitigate unintentional errors and misunderstandings, the IRS has initiated efforts to provide guidance and resources that assist businesses in comprehending ERC eligibility, calculations, and reporting requirements. Clear communication and education have always been vital in preventing the misuse of aid programs, although these have not traditionally been the IRS’s strong suits.
7. Penalties for Fraud: Companies found to have knowingly provided false information or engaged in fraudulent activities to claim the ERC may face severe penalties, including fines and potential criminal charges. As always, these penalties aim to serve as a deterrent to those considering fraudulent claims.
8. Ongoing Fraud Investigations: The IRS has numerous ongoing criminal cases, with thousands of ERC claims referred for audit. This underscores the IRS’s commitment to combatting fraud in the ERC program. Taxpayers are strongly advised to seek assistance from reputable professionals rather than succumbing to the appeals of promoters and “ERC Mills.”
It’s crucial to recognize that the IRS lacks the authority to end the ERC program; only Congress can enact legislative changes. The IRS’s announcement primarily pertains to adjustments in internal protocols, most of which were already in practice. When comparing the reality of the announcement to the current landscape and taxpayer experience, it may appear that the changes are not as significant as they might seem.
The ERC remains a vital lifeline for businesses, and understanding these developments is pivotal for all stakeholders involved.
The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.