In a move to help safeguard small business owners from potential scams and fraud, the Internal Revenue Service (IRS) recently announced a moratorium on processing new claims for the Employee Retention Credit (ERC) through at least the end of the year. This decision comes in response to growing concerns regarding questionable claims and aggressive marketing tactics related to this pandemic-era relief program.
UNDERSTANDING THE EMPLOYEE RETENTION CREDIT (ERC)
The ERC, created under the CARES Act to assist businesses that continued to pay their employees during the COVID-19 pandemic, is a refundable tax credit that allows employers to offset their employment taxes against a percentage of qualified wages paid to employees. Eligible employers can claim the ERC on an original or amended employment tax return for an eligible period between March 13, 2020, and December 31, 2021.
To qualify for the ERC, a business must meet one of the following three criteria:
- Experienced a full or partial suspension of operations resulting from a government order issued due to the COVID-19 pandemic 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 as defined by the criteria set forth in the appropriate IRS guidance (Notice 2021-20 for 2020 and Notice 2021-23 for 2021);
- Qualified as a recovery startup business for the third or fourth quarters of 2021 as defined in Notice 2021-49.
WHAT DOES THE MORATORIUM MEAN FOR YOU?
During the moratorium period, the IRS will continue processing existing ERC claims, but at a slower pace due to increased compliance reviews. Standard processing times, which were previously around 90 days, will now extend to 180 days or even longer if a claim requires further review or audit. The IRS may also request additional documentation from taxpayers to verify the legitimacy of their claims.
PROTECTING YOUR BUSINESS FROM ERC SCAMS
The IRS continues to see aggressive marketing that lures ineligible taxpayers to claim the ERC. While the credit is real, many promoters are aggressively misrepresenting who can qualify for the credit. In a separate IRS announcement (IR-2023-170) released on the same day as the moratorium, the IRS identified red flags for ERC scams, including:
- Unsolicited calls or advertisements mentioning an “easy application process” for the ERC.
- Statements that ERC eligibility can be determined within minutes.
- Large upfront fees to claim the ERC.
- Preparers seeking anonymity by refusing to sign the ERC return (e.g., ghost preparers).
- Aggressive claims that a taxpayer qualifies for the ERC before any discussion of the taxpayer’s tax situation.
WE ARE HERE TO HELP
This moratorium will undoubtedly help protect business owners from scammers looking to take advantage of honest taxpayers. At Frost, PLLC, we are well versed in the complex rules and eligibility requirements for the ERC program and have assisted clients with filing ERC claims since the program’s inception. If you have questions or require more information, please contact your Frost representative, or contact us directly at firstname.lastname@example.org