IRS Pauses New Claims for Employee Retention Credit Program

Thought Leadership from KBKG, Sep 15, 2023

In response to mounting concerns about the integrity of the Employee Retention Credit (ERC) program, the Internal Revenue Service (IRS) has taken the significant step of suspending the acceptance of new ERC claims until at least December 31, 2023. This decision follows increasing reports of fraudulent claims and unscrupulous practices targeting the ERC, posing risks to both businesses and the tax system. 

The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in…. "The further we get from the pandemic, the further we see the good intentions of this important program abused. The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants.

KBKG's Approach to ERC Claims

At KBKG, we prioritize strict adherence to IRS guidelines for the Employee Retention Credit (ERC) program. We are committed to ensuring full compliance with IRS regulations in all our actions, consistently aligning with their expectations.

What You Can Expect from KBKG:

  1. Strict Adherence to IRS Rules
    We welcome the additional scrutiny from the IRS to help weed out bad actors. We will continue to meticulously follow IRS guidelines, producing only claims that meet the IRS’s strict compliance criteria.
  2. Helping Taxpayers Correct ERC Claims
    We can assist taxpayers who previously filed claims with ERC providers known for taking aggressive or incorrect positions. We can help bring these claims into compliance.
    1. Compliance Reviews
      We offer compliance reviews for existing ERC claims, identifying whether they meet all the necessary requirements.
    2. Evaluation of Control Group Aggregation Rules
      We will assess whether control group aggregation rules, a vital component of determining eligibility accurately, were correctly applied.
  3. Identifying Compliance Red Flags 
    Our expertise includes recognizing red flags for compliance, such as ambiguous shutdown orders or insufficient documentation. 

At KBKG, our commitment to precise adherence to IRS regulations and thorough compliance reviews will help ensure your ERC claims are accurate and compliant.

Key Takeaways of Notice 2023-169

  1. Temporary Claim Suspension
    Effective immediately, the IRS will cease processing new ERC claims until the end of the year. This action reflects the agency’s concern over a surge in questionable claims and its commitment to addressing fraudulent activities.
  2. Intensified Review of Existing Claims
    During this period, the IRS will allocate additional time and resources to review previously submitted ERC claims, placing a heightened focus on compliance. Concurrently, it will launch investigations into individuals and entities associated with dubious claims. Numerous investigations are already underway.
  3. Continuation of Payments
    While the suspension is in effect, approved ERC payments will continue, albeit at a slower pace. The extended processing times, now up to 180 days or longer, aim to ensure meticulous scrutiny. Additionally, the IRS may request further documentation to substantiate the legitimacy of claims.
  4. Safeguarding Against Fraud
    The intensified compliance review for pre-suspension ERC claims is vital to combat fraud and shield businesses from penalties and interest stemming from improper claims.
  5. IRS Support Initiatives
    The IRS is actively devising programs to assist businesses that have fallen victim to fraudulent promoters. Details of these initiatives will be disclosed in the coming months.
  6. Claim Withdrawal Option
    Taxpayers who have submitted ERC claims can opt to withdraw them if they believe they were filed incorrectly. However, this action will not exempt individuals from potential legal consequences if fraudulent intent is detected.
  7. Collaboration with the Justice Department
    The IRS is collaborating with the Justice Department to tackle fraud associated with the ERC program and hold promoters who disregard regulations accountable.
  8. IRS Criminal Investigation
    The IRS Criminal Investigation division is pursuing investigations related to potentially fraudulent ERC claims, with over $2.8 billion involved, resulting in federal charges in 15 cases, six of which have led to convictions.
  9. Understanding ERC
    The ERC, designed to assist businesses that maintained employee payroll during the COVID-19 pandemic, is a complex program. However, as the pandemic’s effects diminish, the IRS is enhancing safeguards to prevent abuse.
  10. Risks of Improper Claims
    Taxpayers are reminded that submitting incorrect ERC claims can result in repayment obligations, alongside potential fines and interest charges. It is advisable to ensure eligibility before seeking assistance through the program.

Guidance for Taxpayers on ERC Going Forward

  • If you have an existing ERC claim: anticipate extended processing times due to compliance reviews. Processing times for existing claims could be delayed from the standard goal of 90 days to 180 days or longer.
  • If you plan to submit a claim: meticulously review program guidelines, and consult a qualified tax professional. Exercise caution when approached by promoters offering high contingency fees.
  • In case you realize your claim was erroneous: withdrawing it is an option, even if it is already under audit. More information will be provided shortly.

The IRS is developing a program to help businesses rectify improper ERC payments, with details forthcoming.

Due to the large volumes and the need for compliance checks to protect against fraud, the IRS is unable to expedite individual claims. The IRS believes many of the applications currently filed are likely ineligible, and tax professionals note anecdotally that they are seeing instances where 95 percent or more of claims coming in recent months are ineligible as promoters continue to aggressively push people to apply regardless of the rules.

Indicators of Potential Scams

The IRS cautions individuals to remain vigilant for signs of aggressive marketing and questionable ERC claims. Eligibility requires experiencing COVID-19-related business disruptions, such as government-imposed restrictions or significant revenue declines.

In summary, the IRS’s decision to temporarily halt new ERC claims is a proactive measure to address concerns surrounding fraudulent activity. Existing claimants should be prepared for processing delays, and aspiring applicants are encouraged to seek expert guidance. The IRS remains steadfast in its commitment to program integrity and deterring fraudulent practices.

Help for properly claiming the ERC from the IRS

The IRS published a list of red flags to watch out for aggressive marketing and questionable ERC claims. 

 We urge all clients and our readers to consult and read the full IRS IR-2023-169 published on Sept. 14, 2023. 

 Please contact us with any questions about your ERC concerns. We’re here to help.