On September 14th, the Internal Revenue Service (IRS) suspended the processing of new Employee Retention Credit (ERC) claims until the end of 2023. This decision is a response to the overwhelming number of requests from businesses seeking assistance with ERC claims, a situation exacerbated by fraudulent promoters exploiting the program, which was initiated in 2020 to aid employers during the pandemic. The IRS will continue to assess claims filed before the suspension. Still, the spike in fraud cases necessitates longer processing times, with an increased number of audits and criminal investigations underway to ensure compliance.

During the moratorium period, the IRS emphasized that claims will still be paid out, albeit more slowly, to facilitate detailed compliance checks or audits on over 600,000 existing requests. The extended application review period will last from 90 to at least 180 days, with the IRS retaining the right to request additional documentation from claimants to validate the legitimacy of the claims.

In the event of an Employee Retention Credit (ERC) audit triggered by an Information Document Request (IDR), businesses are required to promptly produce a comprehensive set of documents within a ten-business-day response window. The necessary documentation includes but is not limited to, employee and owner records, payroll data from 2019 to 2021, and relevant previously filed tax forms. A careful delineation of the ERC credit for each employee is essential, requiring records of any operational interruptions in the eligibility period supported by relevant COVID-19 directives. Documents substantiating a 10% "nominal disruption" and those pertinent to the Paycheck Protection Program (PPP) are also vital. Failure to provide these records upon receiving an IDR can result in severe complications with IRS auditors.

IRS Commissioner Daniel Werfel expressed growing concerns about the ERC in a recent press conference, reminiscing about its origin as a lifeline created by Congress to protect jobs and businesses at the height of the pandemic. "Today, more than two years removed from the peak of pandemic-induced economic disruption, we expected a decrease in ERC claims; instead, we are witnessing a surge," Werfel said. He underscored the need to recalibrate the ERC’s operations to align with the current landscape, which has significantly evolved since the peak of the pandemic disruptions.

Furthermore, the IRS, partnering with the Justice Department, is escalating efforts to stem fraud, currently spearheading 252 investigations involving over $2.8 billion in potentially fraudulent claims, which have resulted in six convictions to date. Even as it implements new safeguards, the IRS remains dedicated to processing claims lodged before the moratorium, albeit with deferred timelines. It underscores the necessity of engaging qualified tax advisors to navigate the intricate ERC rules. The IRS urges businesses to liaise with reputable tax professionals to avoid falling prey to scams fueled by misleading promotional campaigns. Werfel encouraged businesses to utilize the newly released IRS guide that outlines eligibility criteria and signals potential red flags to help identify fraudulent claims, aiming to foster proper understanding and prevent misinformation propagated by unscrupulous promoters.

Talley LLP will continue to support businesses despite the IRS's decision to pause new ERC claims. Recognizing the complexities and uncertainties surrounding this decision, we are prepared to offer guidance and assistance to you, ensuring you are well-informed and positioned to navigate these changes.

Talley’s professionals have spent literally hundreds of hours reviewing the law, regulations, and FAQs issued on an almost daily basis regarding the ERC and PPP, and we are happy to assist you in the process. We are available to simply answer a quick question or assist in the application and/or refund process. Contact us today.