IRS Issues Moratorium on Employee Retention Credit Claims

On Thursday, September 14, 2023, the Internal Revenue Service issued IR-2023-169, announcing an immediate moratorium on the processing of claims for Employee Retention Credit (ERC).  The IRS has previously cautioned businesses against companies that have been aggressively marketing claims of ERC eligibility.  Now, amid concerns of proliferating improper submissions, the IRS will not process new claims for ERC until at least January 1, 2024.

To qualify for ERC, a business must have sustained either a “significant decline in gross receipts” or a “full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings because of COVID-19” during 2020 or the first three quarters of 2021.  The latter method requires extensive documentation of the specific government orders giving rise to the purported suspension of operations and the impact on one’s business.  Since the inception of ERC as part of the CARES Act in March 2020, the IRS has issued substantial authoritative documentation explaining how to apply the rules surrounding government restrictions, including Notices 2021-20, 2021-23, and 2021-49.

On July 21, 2023, the IRS Office of Chief Counsel issued Memorandum AM 2023-005, providing examples of how businesses can properly apply the above rules, citing specific language from the CARES Act, related guidance and the Internal Revenue Code regarding “suspension of operations” and “supply chain disruption”, two areas that are being exploited by these aggressive marketers.

“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,” IRS Commissioner Danny Werfel explained, adding, “The moratorium will help protect taxpayers by adding a new safety net onto this program to focus on fraudulent claims and scammers taking advantage of honest taxpayers.”  IRS is currently developing a settlement program for repayments of improper ERC refunds as well as a special withdrawal option for businesses to revoke dubious claims that have not yet been processed.  In addition, they are working with the Justice Department to address not only rampant fraud in the ERC program, but also promotors who have been encouraging businesses that don’t meet the proper criteria to apply for the credit.

In the meantime, IRS will continue to process previously filed ERC claims during the moratorium period, but at a slower pace.  Stricter compliance rules are being implemented, increasing the standard processing goal from 90 days to 180 days, and IRS may request additional documentation during processing to support the legitimacy of claims.

IRS has also issued a new question and answer guide to help businesses navigate the criteria for ERC eligibility and determine if they legitimately qualify for the credit.

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