IR-2023-189 and the Employee Retention Credit Moratorium

In response to an increase in questionable claims, the Internal Revenue Service (IRS) issued news release IR-2023-169, announcing a halt on processing new Employee Retention Credit (ERC) claims. This refundable tax credit was designed to help businesses that kept employees on payroll during the COVID-19 pandemic. The moratorium was enacted to shield small businesses from aggressive marketing schemes and scams. This action allows the agency to intensify its fraud detection measures while it continues to manage the existing inventory of claims.

The Moratorium on New Employee Retention Credit Claims

The IRS instituted an immediate moratorium on processing new ERC claims beginning on September 14, 2023. The IRS has not announced an end date for this pause in processing. The filing deadline for 2020 claims expired on April 15, 2024, and the deadline for claims for the 2021 period is April 15, 2025.

The IRS has noted that these promoters often misrepresent eligibility requirements for the credit. The maximum credit of $26,000 per employee is a cumulative total across two years; the credit was worth up to $5,000 per employee for 2020 and up to $21,000 per employee for 2021.

The agency is also working with the Department of Justice to pursue criminal investigations against fraudulent promoters and businesses that knowingly filed improper claims. Businesses are advised to use this period to carefully review the complex ERC guidelines with a trusted tax professional. The IRS has emphasized that improperly claimed credits must be repaid, potentially with interest and penalties.

Processing of Existing Claims

While the processing of new claims is paused, the IRS continues to work through the inventory of ERC claims submitted before September 14, 2023. These claims, however, are now subject to a more rigorous and detailed compliance review.

This heightened review process has led to an extension of the expected processing timeline. The standard processing goal has been increased from 90 days to 180 days. If a claim is selected for a more thorough examination or a full audit, the timeline could be longer. The IRS may also request additional documentation from taxpayers to verify the legitimacy of their claims before any payment is issued.

Relief Options for Questionable Claims

Recognizing that some businesses may have been misled into filing incorrect claims, the IRS has outlined specific relief options. For businesses that have filed a claim for the ERC but have not yet received a payment, a special claim withdrawal process is available. This allows employers to retract their submission without incurring interest or penalties, effectively canceling the claim before it is processed.

For businesses that already received an ERC payment they now believe was claimed in error, the IRS launched a Voluntary Disclosure Program. This program, which had a limited application window, allowed businesses to repay the erroneously claimed credit at a reduced amount and avoid interest and penalties.