IRS Suspends New Employee Retention Credit Processing Amid Concerns Over Questionable Claims
On September 14, 2023, the Internal Revenue Service (IRS) took action to halt the processing of new Employee Retention Credit (ERC) claims due to a surge in questionable submissions. This measure, which will remain in effect until the end of the year, aims to provide the IRS with the necessary time to implement additional safeguards against future abuse and to safeguard businesses from predatory practices.
While the IRS remains committed to addressing previously submitted ERC claims received before the moratorium, it is essential to note that heightened concerns about fraudulent claims will inevitably lead to extended processing times. The standard 90-day processing goal for existing ERC claims will now be extended to 180 days, and potentially even longer for claims undergoing further review or audit. Also, the IRS may request additional documentation from taxpayers to verify the legitimacy of their claims. This thorough compliance review of pre-moratorium claims is pivotal not only in preventing fraud but also in shielding businesses from penalties or interest payments resulting from improper claims promoted by unscrupulous entities.
For those navigating the ERC process, the IRS offers specific guidance based on their circumstances:
- If you have an existing ERC claim on file, the IRS will continue processing it during the moratorium, albeit at a considerably slower pace due to the complexity of these submissions and the need to protect businesses from erroneous payments. Anticipate potential processing times of 180 days or more.
- If you are contemplating filing a claim, the IRS strongly advises businesses to carefully review ERC guidelines during the moratorium and consult a trusted tax professional rather than relying on tax promoters or marketing firms seeking to profit from ERC applications, which may deplete a substantial portion of the ERC claim.
- If you have already submitted a claim and it is pending, closely examine the program guidelines with a reputable tax professional and consult the new question and answer guide. If you believe your ERC claim was incorrectly filed, even if it is currently under audit or awaiting audit, you can withdraw the claim.
- If your business has received an ERC that you now believe to be in error, the IRS will unveil additional details about a settlement program in the fall. This program will enable businesses to repay ERC claims, avoiding penalties and future compliance actions.
To safeguard against potential scams, be vigilant for the following warning signs:
- Unsolicited communications or advertisements promising an “easy application process.”
- Claims that a promoter or company can instantly determine ERC eligibility.
- Demands for substantial upfront fees to claim the credit.
- Fees calculated as a percentage of the Employee Retention Credit refund amount, resembling a common warning sign for ordinary taxpayers who should avoid tax preparers charging fees based on refund size.
- Preparers who refuse to sign the ERC return submitted by the business or provide their identifying information and tax identification number, resembling “ghost preparers” and placing the risk squarely on the taxpayer.
- Aggressive assertions by promoters that a business qualifies for the ERC without prior consideration of the group’s tax situation. The Employee Retention Credit is a multifaceted credit that requires careful evaluation before application.
In alignment with the IRS’s guidance on proper filing, it is imperative to engage a qualified professional to assess your eligibility and prepare your ERC claim correctly. If you require assistance, please contact Accavallo & Company at (203) 925-9600 or [email protected], as we are committed to providing support in this process.