IRS pauses ERC processing
October 23, 2023
UPDATE: The IRS has announced the ERC claims withdrawal process.
Amid a flood of improper Employee Retention Credit (ERC) claims, the IRS announced on Sept. 14 that it will stop processing the ERC at least through the end of 2023. The IRS is seeing a surge of questionable claims, concerns from tax professionals, and aggressive marketing targeting ineligible applicants. Continuing to process the ERC poses unacceptable risks to businesses and the entire tax system, the IRS said.
"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," said IRS Commissioner Danny Werfel. "The further we get from the pandemic, the further we see the good intentions of this important program abused. The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants."
The IRS is also encouraging taxpayers with existing ERC claims to withdraw them if they believe they are ineligible. The ERC Eligibility Checklist can help small businesses understand who qualifies. (Here's a printable version for clients.) The IRS will initiate a settlement program for those businesses that have already processed a claim and are ineligible.
Complexity related to ERC claims has slowed processing of Form 951. As of Sept. 7, the agency had 384,000 unprocessed Forms 941. The moratorium on taking ERC claims should speed up processing. Watch the IRS Mission Critical page for updates.
The AICPA has announced its support for the IRS's moratorium. "We are pleased with the IRS’s announcement of the additional measures they are taking to push back against the dishonest credit mills taking advantage of unsuspecting small businesses," said AICPA President & CEO Barry Melancon, CPA, CGMA. "While there are still valid claims to be processed, these bold measures are necessary to combat widespread ERC fraud.”
There are a variety of resources available to aid with ERC claims and questions:
- "Moratorium imposed on new ERC claim processing to curb abuse" (Journal of Accountancy)
- "Employee Retention Credits: What to know for 2023"
- "The 10 biggest myths (missed opportunities) with the Employee Retention Credit"
- "ERC suspended: What happens next?" (AICPA podcast)
- IRS ERC webpage
- ERC FAQs
- ERC warning signs and scams
The VSCPA will keep you apprised as new information becomes available!