Important Update on IRS Moratorium on Employee Retention Tax Credit Claims

The IRS issued a notice on Thursday, September 14, 2023 advising taxpayers that a temporary moratorium has been placed on the processing of Employee Retention Tax Credit (ERC) claims until at least the end of the year. In light of this, we at Engineered Tax Services (ETS) want to ensure that you're fully informed and well prepared for the changing landscape.

Why Is the IRS Pausing New ERC Claims?

This recently announced processing pause is intended to:

  1. Clear the backlog: The IRS currently has around 600,000 claims on file that need processing. This pause enables them to catch up on these pending applications.
  2. Educate taxpayers: There's a concentrated effort to educate taxpayers about who genuinely qualifies for the ERC, aiming to prevent the filing of unqualified claims.
  3. Enforce rules more strictly: The IRS is ramping up audit and enforcement measures to identify and penalize fraudulent or unqualified claims. They're also introducing repayment programs for small businesses that may have unintentionally filed incorrect claims.

For further details, please see the official IRS Notice IR-2023-169

How Does This Affect You?

While this doesn't halt the filing of new ERC claims, be prepared for delays if you file after September 14, 2023. Existing deadlines—April 15, 2024 for 2020 and April 15, 2025 for 2021—remain unchanged.

Views From Our Sources in Washington

The increasing popularity of the ERC has resulted in over 3.6 million claims, with reports indicating a surge in fraudulent filings. Our sources expect that the House Ways and Means Committee and/or the Senate Finance Committee may hold hearings on the ERC and the IRS’s decision to institute a unilateral processing moratorium.

This situation presents a complex dilemma. Some members of Congress were caught off guard by the IRS's sudden decision to pause ERC claim processing, fearing it could discourage eligible small businesses from seeking much-needed pandemic relief. However, many of these lawmakers have also criticized the IRS for poorly managing pandemic-related tax matters, particularly citing incidents of fraud and waste.

In defense of its actions, the IRS is likely to argue that the pause is a necessary measure to counter the surge in illegitimate claims. According to their public statements, this move aligns with Congressional calls for stricter oversight. They assert that the halt is designed to protect honest small businesses from predatory companies that mislead them into filing unqualified claims.

Furthermore, Congressional sentiment against increasing the IRS's budget complicates matters. The IRS claims they need additional resources, including manpower, to efficiently process tax filings. With a current backlog of 600,000 filings, it's difficult for Congress to criticize the IRS for taking a breather to catch up. During this pause, the IRS plans to introduce “safe harbor” provisions that will enable businesses to retract or correct false claims before facing stringent audits and penalties.

The value of obtaining a second opinion from qualified tax experts becomes even more crucial under these circumstances, as the IRS gears up for increased scrutiny of ERC claims.

We'll keep a close eye on Washington's response to the IRS's controversial decision.

Why You Should Use ETS for a Second Opinion

Filing an ERC claim can be daunting, especially with the IRS cracking down on fraudulent claims. While you want to take advantage of every tax credit you're entitled to, you certainly do not want to end up in an audit defending an invalid claim.

This is where a second set of expert eyes can give you invaluable confidence and clarity. As specialists in the ERC and other tax credits, our team at ETS stays on top of all the latest IRS rules, measures and deadline changes. We've been warning clients about the rise in ERC scams since November 2022 because we know how quickly things are evolving.

Partnering with us allows you to tap into our specialized knowledge. We can validate whether your company and employees qualify for the credit under the latest guidelines. If eligible, we can provide strategic advice on optimal timing for submission. Finally, we can help ensure your claim is airtight, minimizing the risk of future scrutiny.

Next Steps

While the IRS may be putting a pause on new ERC claims for now, remember that you can still file claims until the current deadlines—April 15, 2022 for eligible quarters in 2020 and April 15, 2025 for eligible quarters in 2021. Given these developments, now is the time to consult qualified experts.

If you're contemplating filing an ERC claim or have recently filed one, we strongly urge you to consult us for a second opinion to validate your eligibility and approach.

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