IRS Issues Moratorium on NEW Employee Retention Credit Claims, Warns of Possible Delays

The employee retention credit (ERC) has been capturing headlines for most of the last few months, and employee retention credit specialists have been hard at work soliciting businesses with advertising in every possible medium. In our last update, the IRS was warning business owners that these “specialists” were filing improper claims despite what they were promising. Promoters often emphasize the “risk free” nature of the ERC submissions, when in reality there are actually huge risks facing businesses including having to pay the credit back in full if evidence of an improper claim is discovered.

The IRS issued IR-2023-169 and IR-2023-170, which includes a moratorium on new employee retention credit claims that will last through the end of the year to allow for the proper safeguards to prevent future abuse and protect businesses from predatory tactics. The memo also includes a list of red flags and a description of how the promoters’ prey on business owners.

The Service is warning that normal processing times for existing claims could stretch from the standard goal of 90 days to 180 days or longer. The IRS is also working with Justice Department to pursue fraud fueled by aggressive marketing.

Recent surge of claims leads to moratorium

There have been more than 3.6 million claims since the program was launched, and there are currently more than 600,000 open claims, most of which have been received over the past 90 days. Aside from this recent surge, the IRS criminal investigation division has initiated 252 investigations involving more than $2.8 billion of potentially fraudulent ERC claims, with some resulting in convictions.

Requirements for a proper ERC claim

Despite the marketing tactics of ERC specialist, ERC requirements are strict. Specifically, you must have:

• Sustained a full or partial suspension of operations due to orders from a governmental authority that limited commerce, travel, or group meetings due to COVID-19 during 2020 or the first three quarters of 2021,
• Experienced a significant decline in gross receipts during 2020 or in the first three quarters of 2021, or
• Qualified as a recovery startup business — which can claim the credit for up to $50,000 total per quarter without showing suspended operations or reduced receipts — for the third or fourth quarters of 2021. (Qualified recovery startups are those that began operating after February 15, 2020, and have annual gross receipts of less than or equal to $1 million for the three tax years preceding the quarter for which they are claiming the ERC.)