09/14/2023
IRS Halts Employee Retention Credit Processing Amid Rising Scam Concerns
WASHINGTON, Sept. 14, 2023: In a response to a surge in dubious claims linked to the Employee Retention Credit (ERC), the Internal Revenue Service (IRS) has ordered an immediate halt to processing new claims until the end of the year. This measure will offer the agency time to implement additional safeguards against fraudulent applications.
Background: The ERC, created during the COVID-19 pandemic, is aimed at aiding businesses that continued paying employees despite experiencing significant challenges.
Reason for Moratorium: IRS Commissioner Danny Werfel announced the suspension after increasing evidence suggested a growing number of ineligible claims. These claims often originate from aggressive marketing campaigns, targeting businesses that might not meet the credit's criteria. Such questionable activities jeopardize both businesses' financial security and the integrity of the tax system.
Current Claims: Claims already filed before this moratorium will continue to be worked on, albeit at a slower pace. Increased scrutiny on these claims could mean a waiting time that's doubled from 90 to 180 days or more if a claim is under additional review or audit. The IRS also intends to introduce rigorous compliance checks to avert fraudulent claims.
Increasing Reports of Fraud: The IRS highlighted hundreds of ongoing criminal cases and numerous ERC claims being referred for audits. The concern is not just about fraud, but also about legitimate businesses facing potential penalties and interests due to incorrect claims urged by promoters.
A Word of Caution: Commissioner Werfel warns businesses against falling for aggressive marketing schemes that push them into claiming the ERC. Instead, businesses are urged to consult a knowledgeable tax professional to determine if they genuinely qualify.
Help for Scammed Businesses: Plans are in progress to introduce initiatives to assist businesses that fell victim to aggressive promotions. This includes a potential repayment settlement program for improperly received ERC funds.
Justice Department Collaboration: The IRS, in partnership with the Justice Department, is ramping up efforts to combat ERC fraud, with a particular emphasis on promoters who push businesses to apply without proper eligibility.
The ERC, a refundable tax credit, was devised to support businesses affected during the COVID-19 pandemic. However, the complexity of the claim has led to potential misuse, especially with the pandemic's impact dwindling and the program nearing its conclusion.
The IRS stresses the importance of businesses independently verifying their eligibility for the ERC. This verification is crucial as an incorrect claim can lead to repayment, possibly accompanied by penalties and interest. Promoters who charge a fee based on the claimed amount can also create a significant financial burden for businesses.
Businesses and individuals are encouraged to visit the official IRS website and use the available resources to determine their ERC eligibility and stay informed about potential red flags associated with the credit.
