Response to the IRS Moratorium
The Commissioner stated that claims previously filed would continue to be processed but at a slower rate. The standard processing time of 90 days will likely increase to 180 days and some longer if selected for review or audit.
What does this mean for you or your clients?
If you partnered with TaxCredible (formerly Alpharesults) for the calculation and support of your Employee Retention Credit, rest easy. Our thorough and conservative approach to calculating the credit is fully supported in accordance with the substantiation requirements for the credit. We are ready should the IRS request documentation and support. We pride ourselves on integrity. If you have questions, please contact your account manager.
The Employee Retention Credit has not ended. This is good news as the Commissioner had previously commented that he considered recommending that the ERC be terminated early to avoid fraud and errors. The additional processing time of claims is a prudent approach by the IRS to help avoid fraud and errors that have plagued to program.
The moratorium on processing new claims will allow the IRS time to review existing claims to determine if the claim is valid. The IRS may also seek additional documentation from the taxpayer to ensure legitimacy.
As the Form 941-X does not provide any insight on whether an employer is eligible, the IRS’ request for additional information seems like the most likely approach other than initiating an audit. Provided the documentation substantiating the credit has been obtained and maintained pursuant to IRS Notice 2021-20 Q/A 70, such a request for additional information should not be a problem.
Employers have had to wait several months to receive their ERC refunds. Unfortunately, with the processing time increasing to 180 days and potentially longer if additional information is requested or the claim is selected for review or audit, the issuance of refunds for newly filed claims may be further delayed.
The IRS employed highly skilled auditors to review the claims posing the highest risk for fraud. The IRS Criminal Investigation Division is actively working to identify fraud and the promoters of fraudulent claims. The Criminal Investigation Unit of the IRS has initiated 252 investigations involving over $2.8 Billion in potentially fraudulent ERC claims. Of the 252 investigations, fifteen have resulted in federal charges, six have resulted in a conviction, and four have reached sentencing, with the average sentence being 21 months. There is no indication if these are employers or promoters.
What to do:
The IRS is processing claims that have already been filed. If the employer’s ERC claim is legitimate, there is no need to do anything other than wait.
However, if the ERC claim has been filed but it is not legitimate, the IRS is developing a process to withdraw the claim. The IRS did not comment on whether the withdrawn claim would prevent the employer from penalty.
If the ERC refund was received, but the claim was not legitimate, the IRS is looking to have an ERC Settlement program for repayment. This will allow the employer to avoid penalties and further compliance action.
What should you do if you have a legitimate ERC claim that has not been filed?
The IRS recommends thoroughly reviewing the guidelines and consulting with a reliable tax professional. We strongly advise those with a valid ERC claim to go ahead and submit Form 941-X. By doing so, your claim will be prioritized for processing once the moratorium is lifted.
Our Assessment of the IRS Announcement
Other than the frustration and inconvenience of having to wait further for the Employee Retention Credit refund, we believe the IRS's announcement and course of action are very positive.
First and foremost, the credit will not end prematurely, allowing eligible employers to continue benefiting from the program. And why shouldn't they? If employers qualify, there is absolutely no reason for them not to take full advantage of this credit.
Furthermore, long overdue protective measures are finally being put in place to safeguard innocent employers who have been misled by unscrupulous promoters.
In addition, the IRS is actively investigating fraudulent claims and vigorously pursuing those responsible for these deceitful acts.
Lastly, the IRS is working on providing options for employers whose claims were not legitimate. This offers a glimmer of hope for those unknowingly subjected to the risks imposed by ERC promoters, as their false and fraudulent claims may be mitigated.