IRS Imposes Moratorium on ERC Claims Processing

The IRS has announced a moratorium on processing new ERC claims in conjunction with a plan to increase scrutiny of pending claims. The move comes amid an increased number of ERC claims that the IRS has determined to be faulty or, in many cases, fraudulent. The IRS also intends to offer relief to taxpayers who were likely encouraged to file faulty claims by unscrupulous practitioners.

Moratorium Timeline

Danny Werfel, commissioner of the IRS, ordered the moratorium through at least Dec. 31, 2023. The moratorium does not explicitly prevent taxpayers from filing new claims; the claims will simply be held in limbo until the end of the moratorium. While the moratorium on processing new claims is in place, the IRS will also begin conducting stricter compliance reviews of existing ERC claims. The IRS emphasized that claims that have been filed prior to Sept. 14, 2023, would continue to be processed, but at a much slower pace. The IRS stated that claims could easily take 180 days or more to be processed.

Relief Programs for Taxpayers With Dubious Claims

In addition to the moratorium and enhanced compliance reviews, the IRS also announced it was finalizing two programs to provide relief for taxpayers who have filed dubious ERC claims:

1. The IRS will soon offer a withdrawal option for taxpayers with unprocessed claims. With this option, taxpayers who have come to doubt the validity of their unprocessed ERC claim will be able to withdraw it rather than go through the process of filing a new set of amended payroll tax returns.
2. For taxpayers with improper claims that have already been paid, the IRS intends to offer a settlement program that will ease the burden of repaying the amount received.

These initiatives are meant to protect businesses from predatory and aggressive marketing tactics by unscrupulous actors, often referred to as “ERC mills.” One such tactic involves ERC mills claiming that many businesses are eligible due to a supply chain disruption. However, the IRS has clearly explained in a Generic Legal Advice Memorandum (GLAM 2023-005) that it would be very unusual for a business to qualify due to a supply chain disruption; the business would have to show that a supplier was suspended due to a government order, and that the business was unable to obtain those critical goods required to continue operations from an alternate supplier.

Continued Vigilance

All businesses that have filed ERC claims should carefully review their eligibility. The IRS has published guidance on eligibility and updated its ERC FAQs, which now offers a list of red flags that could indicate a taxpayer may have been the victim of an ERC scam.

To determine if your business truly qualifies for the ERC program, reach out to your KSM advisor or complete this form.