IRS Suspends Employee Retention Credit Claims Due to Fraud Concerns


The Internal Revenue Service (IRS) has announced that it will stop processing new claims for the Employee Retention Credit (ERC), a tax relief program that was designed to help businesses retain their employees during the COVID-19 pandemic. The decision comes amid rising reports of fraudulent and improper claims, as well as aggressive marketing by some promoters who target unsuspecting businesses.


What is the Employee Retention Credit?

The ERC is a refundable tax credit that eligible employers can claim on their federal employment tax returns. The credit is based on a percentage of qualified wages paid to employees after March 12, 2020, and before January 1, 2022. The percentage and the wage limit vary depending on the time period for which the credit is claimed. The ERC is not available to individuals.

The ERC was created by the CARES Act in March 2020 and was extended and modified by subsequent legislation, including the American Rescue Plan Act in March 2021. The purpose of the credit is to encourage employers to keep their workers on payroll and avoid layoffs during the pandemic.

Why did the IRS stop processing new claims?

The IRS said that it has received a surge of questionable claims for the ERC in recent months, especially from businesses that were not affected by the pandemic or did not meet the eligibility criteria. The agency also said that it has seen an increase in scams and predatory tactics by some promoters who advertise the ERC as a free money opportunity and charge large fees to file claims on behalf of businesses.

The IRS said that it is concerned about the risk of fraud and abuse, as well as the potential harm to honest small business owners who may be misled or pressured into filing improper claims. The agency said that it has initiated hundreds of criminal cases and referred thousands of ERC claims for audit.

To protect taxpayers and the tax system, the IRS decided to impose an immediate moratorium on processing new ERC claims, effective from September 14, 2023, until at least December 31, 2023. The agency said that it will use this time to add more safeguards and prevent future abuse of the program. The IRS also said that it will work with the Justice Department to pursue fraudsters and promoters who exploit the ERC.

What does this mean for existing claimants?

The IRS said that it will continue to process previously filed ERC claims that were received before the moratorium, but at a slower pace due to the enhanced compliance reviews. The agency warned that payouts for these claims may be delayed or denied if they are found to be ineligible or fraudulent.

The IRS also reminded taxpayers that they are responsible for ensuring that their ERC claims are accurate and comply with the law. The agency advised taxpayers to consult with a reputable tax professional before claiming the credit and to avoid any promoters who offer unrealistic or unethical services.

The IRS said that it will provide more information and guidance on its website and through other channels as it becomes available. The agency also urged taxpayers to report any suspicious activities or solicitations related to the ERC to its fraud hotline

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