The IRS has immediately frozen the processing of new Employee Retention Tax Credit (ERTC) claims. Due to an influx of fraudulent applications, the moratorium will last until at least the end of 2023. The IRS cites the possibility of deceitful promoters filing dubious claims on behalf of honorable small business owners to justify the action.

What is the ERTC?

The ERTC is a refundable tax credit available for companies that either:

1. Paid staff when closed due to the pandemic in 2020 and 2021
2. Saw material drops in gross receipts from March 13, 2020, to December 31, 2021

Credits worth up to $26,000 per retained employee are available to qualified employers. ERTC claims are still valid for modified returns. But the conditions are stringent. You must possess:

• Sustained a full or partial shutdown as a result of official directives restricting trade, travel, or group gatherings because of COVID in 2020 or the first three quarters of 2021
• Had a significant drop in revenue in 2020 or a drop in revenue in the first three quarters of 2021
• For the third or fourth quarters of 2021, the business must be eligible as a recovery startup, which allows it to claim a credit of up to $50,000 total per quarter without demonstrating suspended operations or reduced receipts (eligible recovery startups are those that started operations after February 15, 2020, and had annual gross receipts of less than or equal to $1 million for the three years before the quarter for which they are claiming the ERTC)

There are also further limits.

Fraudulent ERTC claims

However, the ERTC’s potential high value and the fact that some employers can still submit claims for it until April 15, 2025, have given rise to a cottage industry of dishonest promoters who promise to assist firms in receiving reimbursements for the credit. They use false information to attract unsuspecting customers who may pay hundreds of dollars in upfront fees or must pay the marketers a percentage of any refunds they receive.

In addition to the costs paid to the promoter, victims can be responsible for repaying the credit and any associated fines and interest. Additionally, as the IRS has pointed out, promoters may omit crucial information, causing a “domino effect of tax problems” for unwary enterprises.

Learn more in our previous blog post, “The IRS warns businesses about ERTC scams.”

The impact of the moratorium

Throughout the suspension, taxpayers will receive payments on valid claims that they have already put in a request for. However, those taxpayers should prepare for a longer wait. The IRS has increased the usual processing time limit of 90 days to 180 days. That includes claims flagged for additional scrutiny or audit, possibly taking considerably longer.

Due to growing fraud concerns, the government is refocusing its review on compliance issues. The change involves stepped-up audits and criminal inquiries of promoters and companies making dubious claims.

Additionally, the IRS is working to create new programs to support companies victimized by pushy promoters. For instance, it anticipates launching a settlement scheme soon that will let people who received an ERTC payment in error avoid fines and further compliance action by giving back the money they received.

If you applied for the credit, but your application still needs to be completed or paid, you can revoke it if you later conclude that it was incorrect. Even if your case is undergoing or is in preparation for an audit, you may still withdraw. According to the IRS, the more than 600,000 claims that are now pending processing can be filed with this option.

Considering submitting ERTC claims?

The IRS advises taxpayers to thoroughly review the ERTC rules while the moratorium is in effect. Genuine claimants shouldn’t be discouraged. But according to the IRS, it’s preferable to verify the truth of your claim with a “trusted tax professional — not a tax promoter or marketing firm looking to make money” by taking a “big chunk” out of it. And don’t expect your credit to be paid off any time soon. Do not hesitate to contact our RRBB advisors if you have questions regarding the ERTC.

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