Insights | (ERC)

Understanding the Moratorium

The IRS’s decision to suspend processing of ERC claims is aimed at addressing the growing concerns of fraudulent filings within the program. This move comes as part of a broader effort to safeguard the funds allocated for economic relief during the pandemic. The rise of seemingly unscrupulous actors and deceptive practices in filing ERC claims has prompted the IRS to take proactive measures to protect the integrity of the program.

Duration of the Moratorium

The moratorium on ERC claim processing is set to remain in effect until at least December 31, 2023. This significant pause in processing introduces several considerations for businesses and taxpayers seeking relief through the ERC program. It is essential to be aware of how this moratorium affects both existing claims and those businesses planning to file new claims.

Impact on Existing ERC Claims

For businesses that have already filed their ERC claims with the IRS, there is some relief. The IRS has committed to continuing the processing of ERC claims that were received prior to the implementation of the moratorium. However, claims within the processing pipeline will now be subject to heightened scrutiny.

Before the moratorium, Taxpayers encountered delays in the ERC processing pipeline; however, the additional reviews ERC claims will be subjected to will lead to further delays for Taxpayer’s waiting for ERC refunds.

Furthermore, the IRS may request additional documentation from taxpayers to verify the legitimacy of their claims.

This increased scrutiny underscores the importance of having accurate and well-documented records to support your ERC claim. It is crucial to ensure that all information provided in your claim is truthful and can be substantiated, as the IRS will be taking a closer look at the details of each claim.

Special Withdrawal Option

If you have filed an ERC claim but now believe it was erroneous or you no longer wish to pursue it, the IRS is in the process of finalizing details for a special withdrawal option. This provision will allow taxpayers to withdraw their ERC claims that have not yet been processed. Keep an eye out for updates from the IRS regarding the specifics of this withdrawal option.

The introduction of a withdrawal option provides an opportunity for businesses to rectify any mistakes or reconsider their eligibility for the ERC program. It is a proactive step that allows businesses to maintain compliance with the program’s requirements.

Repaying Erroneous ERC Claims

For businesses that have already received an ERC refund but later discover that the claim was erroneous, the IRS is developing a settlement program, expected to be unveiled in the fall. This program will enable businesses to repay the ERC claims and avoid penalties and future compliance actions.

This forthcoming settlement program represents a second chance for businesses to rectify any inaccuracies in their ERC claims. It is an important opportunity to correct errors and ensure compliance with IRS guidelines, ultimately avoiding potential legal consequences.

IRS’s Compliance Actions

The IRS is taking comprehensive compliance actions to ensure the legitimacy of ERC claims. Trained auditors are actively examining ERC claims that pose the highest potential for errors. Moreover, the IRS Criminal Investigation division is diligently working to identify instances of ERC fraud and promoters of fraudulent claims. Cases found to be fraudulent may be referred for potential prosecution.

This robust enforcement strategy underscores the seriousness with which the IRS views the protection of government funds and the ERC program’s integrity. Businesses should be prepared for potential audits and inquiries into their ERC claims, even if they believe their claims are legitimate.

What Businesses Need to Do

If you believe your ERC claim is accurate and eligible, it is essential to prepare for potential IRS scrutiny. The IRS will focus its examination on the three areas below. Read more on ERC requirements here.

1. Eligibility: Ensure that your business meets the eligibility criteria for the ERC program. This includes demonstrating the impact of government orders on your business operations. Review your eligibility documentation and be ready to provide evidence of your business’s eligibility.
2. Substantiation: Be prepared to substantiate the amount claimed in your ERC application. Maintain thorough documentation of your pandemic-related revenue losses and employee payments. The more detailed and well-documented your records are, the smoother the audit process is likely to be.
3. Amended Income Tax Returns: Verify whether you filed an amended income tax return to correct any overstated wage deduction. Ensure that your amended return aligns with the ERC claim you submitted. Consistency and accuracy are essential in this regard.

Seeking Professional Guidance

Navigating the ERC program and potential IRS audits can be complex and challenging. It is advisable to engage with experienced professionals who can provide guidance and support throughout the process. Expert advisors can help you prepare and organize the necessary documentation, respond to IRS inquiries, and ensure compliance with IRS requirements.

Conclusion

The IRS’s implementation of a moratorium on new ERC claim processing is a significant development that underscores the importance of accurate and legitimate claims within the program. Businesses should be vigilant in reviewing their ERC claims, preparing for potential IRS audits, and seeking professional assistance when needed. By adhering to the eligibility criteria, substantiating claims, and cooperating with the IRS, businesses can navigate the audit process effectively and maintain the integrity of the ERC program during these challenging times.

In this evolving landscape, staying informed and proactive is key to ensuring your business’s eligibility for ERC and compliance with IRS requirements. The coming months will likely bring further updates and developments, and businesses should be prepared to adapt to changing IRS procedures and guidelines.

As businesses continue to grapple with the economic impact of the pandemic, the ERC program remains a critical lifeline. Ensuring that this relief reaches those who truly need it is paramount. Businesses that have played by the rules and meet the eligibility criteria should approach the ERC audit process with confidence, armed with accurate documentation and professional guidance to navigate the challenges ahead.

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Bennett Thrasher has expertise in handling IRS Employee Retention Credit tax issues with the IRS. For more information, please contact Tim Watt, Tax Partner, or James Pickett, Director of Tax Controversy.