IRS Imposes Moratorium on Employee Retention Credit

Woods Rogers Vandeventer Black

Just a month after the Internal Revenue Service (IRS) released guidance on how federal credit unions may claim the employee retention credit (ERC), the agency issued a moratorium on processing new claims for the credit. The moratorium is expected to last at least until the end of the year.

The agency will continue to process previously filed ERC claims, but it will not accept new ones as of September 14, 2023. Employers who have already a filed a claim should expect a slower than anticipated response as the agency prioritizes compliance.

This IRS decision stems from rising concerns over improper claims for the ERC. Over the summer, the agency shifted focus to reviewing and auditing ERC claims, as scams to pressure small businesses into fraudulent claims increased. By stopping the flow of fraudulent claims, the moratorium also will protect businesses from penalties or fines associated with filing a fraudulent claim, even an inadvertent one. Improperly claiming the ERC means the employer must pay the credit back, possibly with penalties and interest. Finally, filing a fraudulent claim can result in a criminal investigation, something the IRS has been pursuing more aggressively in light of the rise of improper ERC claims.

To be clear, the IRS is not eliminating the eligibility for the ERC, but states in the guidance that employers should carefully review the existing eligibility guidelines before filing. Employers who have submitted claims about which they become unsure of their eligibility after review of the guidelines have the opportunity to withdraw the claim prior to it being processed or paid. This can be done even if the employer is already under audit.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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