IRS Pauses ERC Claim Processing Until End of Year

IRS Implements Moratorium on New ERC Claims

On September 14, 2023, IRS Commissioner Danny Werfel ordered an immediate moratorium running through at least December 31, 2023, on processing new Employee Retention Tax Credit (“ERC”) claims. The halt on processing new claims serves as a measure to stop improper claims and allow the IRS time to deal with questionable claims that have been pouring in.

The IRS previously listed aggressively promoted ERC schemes first on its 2023 “Dirty Dozen” list of abusive transactions, and has issued several warnings about aggressive ERC promoters.

Background of the Employee Retention Credit

The CARES Act established the ERC to assist businesses that paid employees during the COVID-19 pandemic by creating a refundable tax credit to offset employment taxes against a percentage of qualified wages paid to employees. Eligible employers can claim the ERC on original or amended returns for tax periods between March 13, 2020, and December 31, 2021. The IRS has received over 3.6 million ERC claims in the last 2 years.

Current Status of ERC Claims and Processing Delays

There are currently 600,000 open ERC claims, most of which were submitted to the IRS within the past three months. The IRS intends to process these existing claims but they extended the standard processing goal from 90 to 180 days. Payments for existing claims will continue during the moratorium period but at a much slower pace.

IRS Introduces Withdrawal and Settlement Programs

The IRS also released guidance on how taxpayers may withdraw their pending claims in the coming weeks, indicating that it plans to provide a settlement program for those that received improper ERC funds. The voluntary disclosure program would allow a business to repay ERC funds and avoid penalties. Further details on the process for withdrawing an ERC claim and the settlement program will be announced by the IRS later this year.

IRS Issues Eligibility Checklist for Taxpayers

To help taxpayers determine whether they are eligible to claim the ERC, the IRS also released an eligibility checklist. Taxpayers should review the eligibility checklist and decide whether they should continue to assert their claims or they should reconsider them and take remedial action. 

Criminal Investigations and Enforcement Actions Underway

Notably, the IRS is pursuing over 200 criminal investigations of taxpayers to determine whether they willfully filed fraudulent claims. The IRS is signaling aggressive enforcement to encourage voluntary compliance. Taxpayers should look before they leap into filing an aggressive claim.

Authored by Mark Mesler and Scott St. Lifer