The U.S. Internal Revenue Service has announced a moratorium on processing of new claims for federal employee retention credit (ERC) tax credits while it intensifies its investigation of fraud and abuse under the program.
In a news release issued Sept. 14, the IRS said the moratorium, which will last at least through the end of the year, is designed to allow the agency, working with the U.S. Justice Department, to add additional safeguards to prevent fraud and protect businesses from “predatory tactics” by promoters aggressively marketing “risk free” tax credits. The IRS said that “hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.”
The ERC is a refundable tax credit designed for businesses that continued paying employees during the Covid-19 pandemic while their business operations were fully or partially suspended due to a government order, or when they had a significant decline in gross receipts during the eligibility periods.
Businesses improperly claiming the credit face repayment of the amounts received, potentially with penalties and interest. IRS commissioner Danny Werfel urged businesses being pressured by tax credit promoters to “seek out a trusted tax professional who actually understands the complex ERC rules, not a promoter or marketer hustling to get a hefty contingency fee.”
The news release provides recommendations for businesses that have filed ERC claims on the steps they should take depending on where they are in the process. For example, businesses that have filed claims and now believe they may have submitted them improperly can withdraw the claim even if their case is under audit or awaiting audit, provided the claim hasn’t already been processed or paid. The IRS is also developing a settlement program for repayments for businesses that received an improper ERC payment. Details of the programs are expected to be announced in the fall.
ASA members with questions regarding the ERC program or their eligibility for credits should consult with an experienced tax professional with knowledge of the rules. ASA highly recommends its longtime Washington, DC, tax counsel, Miller & Chevalier, which has deep expertise on the subject. Contact Marc Gerson at mgerson@milchev.com or 202-626-1475.
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