The IRS announced yesterday that they are calling an immediate moratorium on the processing of new ERC claims through at least the end of this year. This decision was based on the perceived need to address the high volume of inappropriate or fraudulent ERC claims that have been submitted, an issue that has arisen based on providers pushing inappropriately aggressive or improper claims. The IRS believes that many small businesses are falling prey to aggressive marketing tactics of these “ERC shops.” According to an August 2022 report by the Treasury Inspector General for Tax Administration (TIGTA), the IRS had identified more than 11,000 "suspicious" returns that claimed more than $2 trillion in credits as of March 10, 2022. The report also said that at that time the IRS did not have the means to verify whether an entity claiming the credit actually qualifies or to audit employers filing amended returns to claim the credit. This week’s IRS announcement is meant to slow things down in an effort to protect those businesses.
The implications of the announcement for those working with trusted tax professionals on legitimate ERC claims are limited, but it is still important to understand what is included in this announcement. Specifically, the deadline for filing an ERC claim on an amended Form 941-X has not changed. The moratorium will effectively slow down the processing of these returns, and therefore the receipt of cash from a valid claim may take longer from this point on. Wait times were already quite long even before this moratorium, but valid claims filed by April 15, 2024 (for 2020 time periods) are timely filed and should be honored and ultimately paid.
For an organization that has submitted an ERC claim, and has already received the funds, the announcement serves as a reminder of the importance of maintaining supporting documentation for eligibility and claim calculations.
For an organization that has submitted an ERC claim and has not yet received the funds, the announcement indicates that the wait time for receipt of the refund may be even longer than anticipated. It also increases the chance of an IRS audit prior to the receipt of funds. Again, the importance of maintaining supporting documentation for eligibility and claim calculations is critical.
For an organization planning to file an ERC claim, but that has not done so yet, the window to file a claim is still open, in spite of this moratorium announcement. The deadlines remain: April 15, 2024 for 2020 time periods, and April 15, 2025 for 2021 time periods. The timeline for actually receiving cash for an ERC claim is likely to be extended for claims filed in the future.
The overall risk related to ERC has not changed, but the IRS focus on enforcement and audit activities may increase the chances of IRS scrutiny. The announcement is focused on fraud prevention, given the issues that have arisen with this program, but it is clear that where there is a legitimate ERC claim, it may still be filed, albeit into a non-processing environment for the time being.
According to an August 2022 report by the Treasury Inspector General for Tax Administration (TIGTA), the IRS had identified more than 11,000 "suspicious" returns that claimed more than $2 trillion in credits as of March 10, 2022. The report also said that at that time the IRS did not have the means to verify whether an entity claiming the credit actually qualifies or to audit employers filing amended returns to claim the credit.
According to an August 2022 report by the Treasury Inspector General for Tax Administration (TIGTA), the IRS had identified more than 11,000 "suspicious" returns that claimed more than $2 trillion in credits as of March 10, 2022. The report also said that at that time the IRS did not have the means to verify whether an entity claiming the credit actually qualifies or to audit employers filing amended returns to claim the credit.