Due to a surge in illegitimate and unauthorized claims for the Employee Retention Tax Credit (ERTC), the IRS has imposed an immediate suspension on processing new credit claims, expected to last until the end of 2023. The IRS has taken this action to safeguard honest small business owners from potential scams orchestrated by untrustworthy promoters who file questionable claims on their behalf.
The ERTC Fraud Problem
The ERTC is a refundable tax credit intended for businesses that:
Continued to pay employees during pandemic-related shutdowns in 2020 and 2021.
Suffered a substantial decline in gross receipts between March 13, 2020, and December 31, 2021.
Eligible employers can receive tax credits worth up to $26,000 per retained employee. It is important to note that the ERTC can still be claimed on amended tax returns.
The potentially high value of the ERTC, combined with the extended filing deadline of April 15, 2025, has led to an industry of fraudulent promoters who help secure these tax refunds. These fraudulent promoters exploit inaccurate information to attract unsuspecting clients, who may pay upfront fees in the thousands of dollars or be required to give a portion of their refunds to the promoters. Unfortunately, victims of these schemes could find themselves liable for repaying the credit, along with penalties and interest. Furthermore, these promoters often omit crucial details, setting off a chain reaction of tax-related problems for unsuspecting businesses.
The Impact of the Moratorium
Payouts on legitimate claims already filed will continue during the moratorium period. However, taxpayers should expect extended processing times. The IRS has extended the standard processing timeframe from 90 to 180 days. Claims flagged for further review or audit may have lengthier waiting periods. Heightened concerns regarding fraudulent activities have prompted the IRS to redirect its review efforts toward compliance issues. The shift includes intensified audits and criminal investigations targeting promoters and businesses filing questionable claims.
The IRS is developing new initiatives that assist businesses targeted by aggressive promoters. For example, it expects to offer a settlement program that enables recipients of improper ERTC payments to avoid penalties and future compliance action by repaying the amount received.
If you submitted a claim for the credit, and it has not yet been processed or paid, you can withdraw your claim if you now believe it was not valid. This withdrawal opportunity remains open, even if your case is under or awaiting audit. The IRS has confirmed that this option is available for those waiting to be processed.
Still Considering Claiming ERTC?
The IRS advises taxpayers to meticulously review the ERTC guidelines while the moratorium is in effect. Legitimate claimants should not be discouraged; however, the IRS recommends verifying the validity of your claim through a trusted tax professional rather than relying on tax promoters or marketing firms seeking to profit by taking a significant portion of your claim.
Here to Help
If you have any questions about the ERTC, we are here to help. We build value-added relationships with each client to understand their business structure to provide solid solutions, and our approach offers direct access to the firm's decision-makers. Our innovative, cross-functional services help businesses address the challenges ahead. Contact us to let us know how we can best support you.