Tax Byte

IRS Stops All New ERC Processing to Combat Fraud

The IRS has stopped processing all new employee retention credit (ERC) claims in an effort to combat rampant fraud associated with the program. The IRS announced the immediate moratorium on processing all new ERC claims on 9/14/23, which is expected to be in place through at least the end of the year.

The move ordered by IRS Commissioner Danny Werfel comes after growing concerns from the IRS and tax pros alike that a substantial share of new claims from the aging program are ineligible and fraudulent, ultimately putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.

“The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in,” Werfel said. “We believe we should only see a trickle of employee retention credit claims coming in. Instead, we are seeing a tsunami.”

The ERC, originally enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), was created to help businesses pay their employees during the COVID-19 pandemic by establishing a refundable credit against employer taxes.  Although the period of eligibility expired December 31, 2021, eligible businesses can generally file claims until 2025.

What now?

Currently, the IRS has more than 600,000 open ERC claims, most of which have been filed in the last few months, according to Werfel. Although no longer processing new claims, the IRS will continue to process claims submitted before the September 14 moratorium. 

Looking ahead, the IRS is developing new programs to help businesses who found themselves victims of aggressive promoters, which includes a settlement program for repayments for those who received an improper ERC payment. The IRS expects to release more details on the settlement program this fall.

Additionally, the IRS is finalizing details for a special withdrawal option for those who have filed an ERC claim but the claim has not yet been processed. This initiative will allow taxpayers whose ERC claim has not been paid to avoid possible repayment issues and paying promoters’ contingency fees.

For more information and advice from the IRS on navigating the murky ERC waters, you can view yesterday’s announcement HERE.

And for a deeper dive into all things ERC with Western CPE’s expert instructor Mark Seid, check out his new 2-credit course HERE.


Stay updated with more breaking tax-related developments by subscribing to Tax Bytes with Jessica Jeane, J.D.