To combat fraudulent filings of the Employee Retention Credit (ERC), the IRS announced a new case processing moratorium effective September 14, 2023.
What is this moratorium?
This action is a decision by the IRS Commissioner to suspend processing of Employee Retention Credit claims effective immediately. This moratorium will stay in effect until at least December 31, 2023.
What impact does the moratorium have on ERC claims already filed with the IRS?
The IRS will continue to work previously filed ERC claims received prior to the moratorium. However, the claims currently in the processing pipeline will be subject to more scrutiny. Therefore, Taxpayers will continue to experience delays in receiving ERC refunds. Additionally, the IRS may also seek additional documentation from Taxpayers to ensure that claims are legitimate.
Can I withdraw a claim I already filed if I believe it’s erroneous?
Yes, the IRS finalizing details that will be available soon for a special withdrawal option for those who have filed an ERC claim, but the claim has not been processed.
What if I’ve already received an ERC refund and I now believe the ERC claim was erroneous?
If a business has already received an ERC refund that they now believe is in error, the IRS will be providing additional details on a settlement program in the fall. The program will allow businesses to repay ERC claims and avoid penalties and future compliance action.
What compliance action is the IRS taking for ERC claims already filed?
The IRS has trained auditors to examine the ERC claims posing the greatest potential for error. Additionally, the IRS Criminal Investigation division is actively working to identify ERC fraud and promoters of fraudulent ERC claims for potential referral for prosecution.
If I believe my ERC claim is correct, what do I need to know and do next?
In its examination of ERC claims, the IRS will focus on three areas: eligibility, substantiation of the amount claimed and whether an amended income tax return was filed to correct any overstated wage deduction.
A particular focus of the IRS will be on substantiating qualifications based on a partial suspension of business operations, which requires a taxpayer to demonstrate that a government order interrupted at least a portion of its business operations. Additionally, the order must be more than a recommendation and the shutdown order must have impacted business operations by a more than nominal amount.
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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, by calling 770.396.2200.
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