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IRS Halts ERC Tax Claims, Now is the Time to Re-Evaluate Filed Claims

September 18, 2023, Written by: Martin L. Borosko, Esq. Managing Member & Staffing Practice Leader

The IRS announced the immediate halting of processing new ERC claims for the pandemic-era tax break in an effort to stop what they are saying is a “wave of fraudulent and overstated claims.” No current and future claims for the Employee Retention Credit will be processed until, at the earliest, 2024 per the IRS announcement on Thursday September 14, 2023. This action was prompted by concerns that were raised by the media, tax professionals and the agency itself due to the increased buzz of potential fraud surrounding the pandemic-era credit.

“The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in,” Commissioner Werfel stated in a recent press release. “The further we get from the pandemic, the further we see the good intentions of this important program abused,” Werfel added.

The IRS is also planning to administer vigorous investigations into the existing que of over 600,000 requests. Currently, employers with pending claims or those who filed an inflated claim unknowingly will have the opportunity to withdraw their claim and further will have the option to repay funds if the IRS deems that they no longer feel they qualify for the employee retention credit. The agency plans to announce the details in the coming weeks about the withdrawal process and settlements to further explain how employers can seek such.

Currently, the refund time in the que with the IRS is 90 days; with the tougher scrutiny that the IRS is giving to the claims in its que it will now stretch to 180 days. The IRS is also requesting employers provide further documentation, which will cause some employers to drop their claims.

Many of the ERC relief companies, which happens to include many firms that did not exist pre-pandemic, charge their clients a portion of the refund they receive. The IRS has instructed taxpayers to avoid using companies that use this business model as these promoting companies do their calculations of the credit and often do not prepare or sign the tax returns. These ERC relief companies also rely on the business owners themselves to make the determination on whether a government order has fully or partially suspended their operations, which is typically the key reason for the ERC credit.

In his letter to Senate Finance Chair Ron Wyden, Democrat from Oregon, Treasury Deputy Secretary Wally Adeyamo has called Congress to give the IRS the authority to monitor these paid preparers and to strongly consider other methods, which could include focusing on contingency fee practices to minimize this abuse.

Both the American Institute of CPA’s and the National Association of Tax Professionals have agreed with the decision.

“While drastic, these measures are necessary to protect small businesses by putting a stranglehold on the unscrupulous ERC practices of credit mills,” Barry Melancon, AICAP CEO, has announced in a statement.

IRS officials have stated they want to give American business owners the opportunity to re-evaluate their decision to file their ERC claims. The IRS has published a new eligibility checklist to assist employers in evaluating if they qualify for the credit:

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