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IRS Orders Immediate Moratorium on ERC Processing

Overview

On September 14, 2023, the IRS announced an immediate moratorium on the processing of the Employee Retention Credit (“ERC”) due to suspected fraud. IRS noted an increase in aggressive and misleading marketing campaigns luring taxpayers into claiming the ERC when they are not eligible for it. Employers improperly receiving the credit could have to repay the credit along with substantial penalties. IRS Commissioner Danny Werfel ordered the immediate moratorium to run through at least December 31, 2023.

On September 14, 2023, the IRS issued a press release titled “To protect taxpayers from scams, IRS orders immediate stop to new Employee Retention Credit processing amid surge of questionable claims, concerns from tax pros.” IRS ERC Press Release September 14, 2023.

In Detail

The ERC In General

The ERC is a refundable tax credit for business and tax-exempt organizations. Certain eligible employers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and December 31, 2020. To qualify employers must meet one of the following criteria:

  1. They sustained a full or partial suspension of operations due to an order from a governmental authority because of COVID-19 during 2020 or the first three quarters of 2021;
  2. They experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021; or
  3. They qualified as a recovery startup business for the third and fourth quarters of 2021.

Moratorium and ERC Scams

Due to growing concerns about a flood of improper ERC claims, the IRS announced an immediate moratorium as of September 14, 2023, through the end of the year. IRS Commissioner Danny Werfel ordered the moratorium due to reports that a substantial share of new claims from the program are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.

The IRS published several warning signs of aggressive ERC marketing to watch out for, including:

  • Unsolicited calls or advertisements mentioning an “easy application process,” or offering a short eligibility checklist;
  • Statements that the promoter or company can determine ERC eligibility within minutes;
  • Large upfront fees to claim the credit;
  • Fees based on a percentage of the refund amount of Employee Retention Credit claimed (also referred to as a Contingency Fee);
  • Preparers refusing to sign the ERC return being filed by the business, exposing just the taxpayer claiming the credit to risk;
  • Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group’s tax situation;
  • Wildly aggressive suggestions from marketers urging businesses to submit the claim because there is nothing to lose.

What To Do

If your company engaged such a firm to claim the ERC, please contact McMahon & Tivnan at 617-600-5400 to determine:

  • Whether your company is actually entitled to the ERC;
  • Whether you company faces exposure for penalties and what can be done to minimize that risk; and
  • Regardless of entitlement, whether your company paid excessive fees to claim the credit.

For more information regarding the ERC, please read the Frequently Asked Questions About the Employee Retention Credit published by the IRS.