Moratorium issued by IRS on new claims for the Employee Retention Credit (ERTC)
The IRS has announced a moratorium on processing new claims for the Employee Retention Credit (ERC) through at least December 2023 due to concerns about the eligibility of a large number of recent claims. The ERC is a refundable federal employment tax credit established under the CARES Act in 2020 and subsequently modified and extended. The IRS has received approximately 3.6 million ERC claims since the program started, with an inventory of about 637,000 unprocessed Forms 941-X, which are used to claim the ERC, as of September 6, 2023.
The IRS is implementing a settlement program to allow employers to repay erroneous refunds and a claims withdrawal program to permit employers to withdraw their claims before receiving the refund. The settlement program aims to help employers who may have been misled by aggressive promoters and marketing. The IRS is also taking steps to address concerns about the legitimacy of many ERC refund claims, including a referral of cases for audit and criminal investigation.
The IRS is advising taxpayers to carefully review ERC guidance before filing a claim and to consult with trusted tax professionals. For those who have already filed claims and are awaiting refunds, the processing time will be extended, and claims will be subject to additional scrutiny. The IRS is particularly focusing on ERC claims based on supply chain issues. The agency is finalizing a program that will allow businesses to withdraw claims even if they are under or awaiting audit, but withdrawing a fraudulent claim does not exempt the filer from potential criminal investigation.
Employers who have already received refunds that they believe to be in error are encouraged to watch for details on the IRS settlement program. The IRS has also issued warnings about aggressive marketing related to the ERC and provided red flags for employers to be cautious of. The announcement reflects the IRS's ongoing efforts to address concerns about improper ERC claims and emphasizes the importance of accurate and eligible claims.
Taxpayers with concerns about potentially filing improper claims are advised to consult with their tax advisors. The IRS is set to release more details on the settlement program and other initiatives in the coming months. The statute of limitations for refund claims generally expires in April 2024 for 2020 refund claims and April 2025 for 2021 refund claims, with an extension to April 2027 for claims filed for the third quarter of 2021.
