IRS Freezes ERC Processing & Cautions Taxpayers of ERC Scams

Everyone knows COVID-19 did a number on the economy.  And though we are now over 3 years away from the start of the pandemic, we are still working through the changes that came as a result of that point in history.  One such matter is the ERC – the Employee Retention Credit; or sometimes called the ERTC, tossing “Tax” into the name.  This program makes available a complex tax credit for businesses or tax-exempt organizations which – as the name suggests – retained their employees through COVID-19.

This incentive program has provided a wonderful boost to those businesses that were able to continue operations through the pandemic.  Unfortunately, the warm water was muddied when ERC advertisements started cropping up, instructing businesses to apply for free money by claiming the ERC.

Don’t be fooled.  Per the IRS, these third-party ERC service promotions, are a scam.  The idea being that a business owner would pay for ERC services, file an ERC claim, then the “service provider” would disappear like a pop-up shop at the end of its run.  In 2023, the IRS saw enough of an influx of improper claims for the ERC, to land ERC-related scams on the IRS list of the worst tax-related scams of the year.  And the number of businesses – largely unknowingly – filing fraudulent ERC claims has grown so much that…

The IRS has placed a moratorium on all ERC claims, starting September 14, 2023, through the end of the year.

Additionally, the IRS has now introduced protocol for withdrawing improper ERC claims, or correcting previously filed ERC claims.

This halt on the processing of ERC claims, and the new procedure for withdrawal of an improper ERC claim, is directly related to IRS concerns surrounding fraudulent ERCs, and in an apparent effort to protect business owners.

Improper ERC claims are not only subject to repayment – which for some businesses could be hundreds of thousands of dollars;  businesses also face penalties and interest on the funds they received from the ERC with the fraudulent claim.  And it doesn’t stop there.

Filing for the ERC requires business and individual tax returns be amended accordingly.  If a business has already gone through these additional steps, they are likely out a few thousand dollars just in preparation fees.  If it is determined the ERC was improperly claimed, businesses and individuals will then need to re-amend their tax returns to back out of the ERC.  As you can see, the cost of filing an ERC claim incorrectly has the potential to be incredibly expensive.

What you need to know.

• The IRS moratorium affects all ERC applications submitted on or after September 14, 2023.
• ERC applications submitted in the 90-days leading up to this date, should expect extended processing time of 180 days or longer, as the IRS continues to comb applications for fraud.
• If you have not yet filed for ERC, but intend to – the IRS cautions businesses to carefully review the guidelines, and encourages businesses to engage a tax professional for the calculation, preparation, and filing of your ERC.
• The IRS has made an ERC eligibility checklist to provide additional guidance to businesses considering filing a claim. We have linked the IRS.gov publication here; and importantly note that supply chain issues alone do not qualify a business for the ERC.
• If you feel your ERC claim is legitimate and properly calculated, feel free to submit your application as usual; but expect extended processing time by the IRS.
• Regarding withdrawal of your ERC Claim – this can only be done if a certain set of parameters are met, including the intention to withdraw the entire amount of your ERC claim; and only if you have not yet received your ERC funds, or have not yet cashed/deposited your ERC refund check.
• The IRS will continually update the ERC section of IRS.gov with more information regarding ERC claims, withdrawal guidance, and other information.

ATLAS can properly prepare your ERC application, assist with your ERC withdrawal, or correct your improperly calculated ERC claim.

ATLAS has been providing ERC services since the program’s inception.  Our ERC applications are always prepared carefully by tax and payroll professionals, going through a multi-step process and high-level review before filing to ensure accuracy, and that we are helping you claim as much funding as possible.

While it is great news that the IRS is now allowing ERC applications to be withdrawn for any business concerned that their ERC claim may be incorrectly calculated, this opportunity also comes with a lot of parameters.

If you have found yourself in a stressful situation, concerned that your ERC claim may be fraudulent, your ATLAS Team can help!

The procedure, details, and instructions of how to handle an ERC claim withdrawal were outlined in an IRS webinar for tax professionals, dated November 2, 2023, attended by ATLAS team members.  Your ATLAS Team continues to stay ‘in the know’ with the latest information from the IRS, to ensure the most accurate reporting for your business’s ERC claim, or an appropriately handled ERC withdrawal, when necessary.

 

If you have any questions about this article, or need assistance filing for ERC or withdrawing your ERC claim, please do not hesitate to reach out to your ATLAS office directly, or contact us via our ATLAS website.

We are always happy to help, and are grateful every day for the opportunity to serve you!

Onward. Upward. Beyond.
Your ATLAS Team