The Internal Revenue Service took a crucial step to safeguard honest business owners from falling prey to scams related to the Employee Retention Credit (ERC) program. The importance of ensuring that businesses receive the relief they need is paramount, especially during challenging times. Unfortunately, aggressive promotors and marketers who collect contingency fees have scammed countless small business owners into claiming the credit when they don't actually qualify.
Improper Employee Retention Credit Claims
The IRS has been increasingly alarmed by the surge in improper claims for the Employee Retention Credit. These claims, which are meant to provide financial relief to businesses adversely affected by the pandemic, have become a target for aggressive marketing tactics. This has led to a substantial number of ineligible applicants putting their businesses at financial risk. Those who received the credit but do not qualify must repay the credit to the IRS.
Immediate Actions Taken by the IRS
To address this concerning trend, IRS Commissioner Danny Werfel has ordered an immediate moratorium on processing new claims for the ERC program. This moratorium, effective September 14, 2023, will remain in place until at least December 31, 2023. The goal is to provide the IRS with the necessary time to implement additional safeguards and prevent further abuse of the program.
Impact on Existing Claims
While the moratorium is in effect, the IRS will continue to process previously filed ERC claims. However, it is important to note that due to the enhanced compliance reviews, processing times will be extended. Claims that would typically have a 90-day processing goal will now take up to 180 days, and possibly longer if further review or audit is required. Taxpayers may also be asked to provide additional documentation to verify the legitimacy of their claim.
The need for stricter compliance reviews during this period cannot be overstated. This measure is not only critical to protect against fraud but also to shield businesses from potential penalties or interest payments arising from improper claims. It is imperative that businesses exercise caution and ensure that their claims are legitimate.
Risks of Improper Claims
Promoters have been aggressively marketing ERC submissions as "risk-free," but this couldn't be further from the truth. Improperly claimed ERC credits can lead to significant risks for businesses. It's crucial to remember that if a business improperly claims the ERC, it will be required to repay it, potentially with additional penalties and interest. In some cases, a business could find itself in a worse financial position than if it hadn't claimed the credit at all. This underscores the importance of independently verifying eligibility before applying through a promoter.
What Now?
For businesses currently awaiting an ERC claim, it's important to be aware that processing times will be significantly longer due to the increased compliance scrutiny. While the IRS continues to process these claims during the moratorium period, businesses should expect extended wait times. It's important to note that many of the applications currently filed may be ineligible, with reports indicating that a significant percentage of recent claims are invalid. Unfortunately, individual claims cannot be expedited due to the large volume and need for compliance checks.
For those who haven't yet filed a claim, careful review of the ERC guidelines during the moratorium period is recommended. Seeking advice from a trusted tax professional, rather than a promoter or marketing firm looking to profit from applications, is crucial. The new "question and answer guide" released by the IRS can also provide valuable insights. Taking the time to ensure eligibility can save businesses from potential complications with the IRS.
Businesses that have already filed a claim should review the program guidelines with a trusted tax professional. If a claim was submitted improperly and has not yet been processed or paid by the IRS, businesses have the option to withdraw the claim, even if it's already under audit.
IRS ERC Settlement Program
For businesses that have received an ERC payment they now believe was in error, the IRS will be providing details on a settlement program in the fall. This program will allow businesses to repay ERC claims, avoiding penalties and future compliance action. The IRS is actively assessing how to address cases where a promoter contingency fee was paid from the ERC payment.
The original News Release from the Internal Revenue Service official site can be found here.
Legal Disclaimer: The contents of this blog and all posts within it are for informational use only and are not intended to be legal advice. This blog is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice in any capacity. For specific advice regarding your own tax situation, consult with a licensed tax professional or tax attorney.