On September 14, 2023, the Internal Revenue Service (IRS) announced that it has imposed a moratorium on processing new claims for the Employee Retention Credit (ERC). The moratorium is expected to be in effect through at least the end of 2023.

• The ERC is a refundable payroll tax credit available to certain businesses that, during specified eligibility periods, were forced to suspend their operations by government order due to the COVID-19 pandemic, or which experienced significant reductions in quarterly gross receipts during the pandemic measured against their pre-pandemic 2019 gross receipts for the similar quarter.
• The credit equals a percentage of wages (subject to a cap) paid during the eligibility periods (generally from March 13, 2020, through September 30, 2021 (December 31, 2021, for certain businesses)).

The IRS is imposing the moratorium in response to rising concerns about numerous improper and fraudulent claims for the ERC. Many of these claims have resulted from the aggressive efforts of promoters and marketing firms pushing dubious schemes to taxpayers about their eligibility for the credit.

• To illustrate the significance of this fraud issue, the IRS also announced that hundreds of criminal cases relating to suspected fraudulent ERC claims are being worked, and thousands of claims have been referred for audit.

The IRS is continuing to work previously filed ERC claims, but given the heightened concerns about fraudulent claims, processing times will be much longer due to enhanced review. While payouts will continue during the moratorium, given the stricter compliance reviews, processing times are being extended to 180 days or longer.

The IRS is also finalizing details of several initiatives aimed at addressing and resolving fraudulent claims:

• Withdrawal option: The IRS is formalizing a process that would allow taxpayers to withdraw ERC claims. This will give taxpayers the opportunity to pull back potentially suspect claims prior to those claims being processed. While this option will generally obviate the need for taxpayers to return improperly granted claims, the IRS warns that those taxpayers who willfully filed fraudulent claims will not be exempted from potential criminal investigation and prosecution. If you are considering withdrawing an ERC claim, you should consult legal counsel before doing so.
• Settlement initiative: The IRS is also working on a settlement initiative for taxpayers who have received improper payments of ERCs.

Further details on these initiatives will be forthcoming from the IRS.

For taxpayers that have not yet filed ERC claims, the IRS is urging them to carefully review the ERC eligibility guidelines during the moratorium period, and to refrain from filing claims during the moratorium period. Moreover, the IRS is encouraging taxpayers to talk to trusted tax professionals about their eligibility for the credit.

Click here for more information on the ERC claim moratorium and the IRS’s initiatives to address improper ERC claims.

This moratorium represents a significant effort on the part of the IRS to identify, punish, and prevent further fraud in the ERC claims process.

For more information, please contact Citrin Cooperman’s Commercial Tax Services Practice or Michael Mishik at mmishik@citrincooperman.com.