A surge in fraudulent claims for the Employee Retention Credit (ERC) program in recent months has led to the IRS’s decision to halt the program until at least Dec. 31, 2023. IRS Commissioner Danny Werfel issued an immediate moratorium on Sept. 14, 2023, citing escalating evidence of suspicious claims flooding the system as the reason for the action. The ERC, a refundable tax credit established under the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, was initially designed to incentivize employers to retain their workforce during the early stages of the COVID-19 pandemic when unemployment rates were soaring. Since its inception, the IRS has received an overwhelming 3.5 million ERC claims.The moratorium is aimed at protecting taxpayers by adding an extra layer of security to the program, focusing on fraudulent claims and preventing scammers from exploiting honest taxpayers. Despite the moratorium, the IRS continues to process ERC claims submitted before the suspension. However, due to the increased scrutiny for compliance, the processing times have been extended. The standard 90-day processing goal has been adjusted to 180 days, and claims facing further review or audit may take even longer.

Increased Compliance Efforts

Unfortunately, a substantial portion of these claims has proven to be fraudulent, prompting the IRS to issue warnings to business owners about potential ERC scams. In July, the agency declared a shift in focus toward rigorously reviewing these claims for compliance concerns, intensifying audit and criminal investigations targeting both promoters and businesses involved in filing questionable claims. The IRS has revealed it is currently engaged in hundreds of criminal cases, with thousands of ERC claims referred for audit as part of its broader compliance efforts.To combat fraudulent activities within the ERC program, the IRS has partnered with the Justice Department, addressing not only fraudulent claims but also the promoters who have been disregarding the regulations and encouraging businesses to apply for the tax credit through deceptive promotions. The IRS has allocated trained auditors to assess high-risk ERC claims, while its Criminal Investigation division actively identifies promoters of fraudulent claims for potential prosecution by the Justice Department.

Additional Support for Businesses

The IRS is also working on initiatives to aid businesses that have fallen victim to unscrupulous promoters. This includes a repayment settlement program for those who received an erroneous ERC payment, with more details to be announced in the coming months. Additionally, a special withdrawal option is in development for businesses that filed ERC claims but have not yet seen them processed. This option aims to help small business owners who were misled by promoters avoid potential repayment issues and contingency fees. It is expected to be available to over 600,000 claims currently awaiting processing. The IRS emphasizes that withdrawing a fraudulent claim will not exempt individuals from possible criminal investigations and prosecution. Same goes for businesses receiving improper ERC payments; they still may need to repay them. As a result, the IRS urges businesses to seek assistance from reputable tax professionals who possess a deep understanding of the intricate ERC rules, rather than relying on promoters seeking hefty contingency fees. Doeren Mayhew’s dedicated Employee Retention Credit advisors stand ready to assist your business in navigating the ongoing complexities of the ERC – contact us today.