IRS to Stop Processing Employee Retention Tax Credit Claims

by | Sep 19, 2023 | Client Memo, Tax

The IRS issued a notice last Thursday ordering an immediate stop to processing all new claims for the Employee Retention Tax Credit (ERTC). This comes amid a surge of questionable claims and concerns about aggressive marketing to ineligible taxpayers. Here are the highlights that you should be aware of:

  • Immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief.
    On July 26, the agency announced it was increasingly shifting its focus to review these claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS announced today that hundreds of criminal cases are being worked, and thousands of ERTC claims have been referred for audit.
  • With the stricter compliance reviews in place during this period, existing ERTC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure it is a legitimate claim.
  • The IRS is finalizing details on a special withdrawal option but those who have willfully filed fraudulent claims or conspired to do so should be aware, however, that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.
  • When properly claimed, the ERTC 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 they had a significant decline in gross receipts during the eligibility periods.
  • To be eligible, employers must have:
    • Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings because of COVID-19 during 2020 or the first three quarters of 2021;
    • Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or;
    • Qualified as a recovery startup business for the third or fourth quarters of 2021.

For questions or concerns please feel free to contact us.

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