IRS Halts ERC Claims and Urges Vigilance to Combat Fraud

AAFCPAs would like to make clients aware that, as of September 14, 2023, the IRS has ordered an immediate halt to new Employee Retention Credit (ERC) claims in an effort to curtail a surge in scams. This move is set to affect all businesses taking or thinking about taking credits. The moratorium extends through the end of the year and may be extended into 2024.

Existing claims and payouts will be processed, but claimants may expect a slower than normal turnaround as agents ensure compliance, intensify audit work, and conduct criminal investigations. While ERC claims have typically taken 90 days to process in the past, processing may now extend to 180 days or longer should claims face further review or audit. The IRS has stated that they are working on hundreds of criminal cases along with thousands of audits.

Meanwhile, the IRS is putting its final touches on new initiatives that will help businesses that fell prey to aggressive promoters. This includes a new ERC settlement program to allow credit repayment without penalty. More details on this program are expected this fall. The IRS is also finalizing details on a special ERC claims withdrawal option prior to processing. This option can help to avoid potential repayment issues along with payment of promoters’ contingency fees. Filers of more than 600,000 claims who are still awaiting processing will have this option available.

IRS Criminal Investigation (IRS-CI) uncovered suspected pandemic fraud exceeding $8 billion to date. The IRS also received approximately 3.6 million ERC claims throughout the course of the program. As of July 31, 2024, IRS-CI initiated 252 investigations involving more than $2.8 billion in potentially fraudulent ERC claims. Of those 252 investigations, 15 have resulted in federal charges. Of those 15 federally charged cases, six matters to date resulted in convictions and four reached the sentencing phase, with the average sentence being 21 months.

The IRS urges businesses that have considered filing or those pressured by promoters to apply for the ERC to pause, review their situation, and carefully study ERC guidelines during this moratorium period. The IRS also recommends that businesses talk to a trusted tax professional versus a tax promoter or marketing firm that seeks to profit by generating applications that take a big chunk out of their ERC claim.

Next Steps:

• If you have already filed a claim for ERC, no action is needed at this time. But processing of your claim may be delayed.
• If you are in the process of filing a claim for ERC, please reach out to your AAFCPAs advisor to discuss eligibility and accuracy of the calculation of the claim.
• If you are involved in an IRS audit for a previously filed ERC claim, please reach out to your AAFCPAs advisor to see how we can help.
• If you have not applied for ERC, now is the time to reach out to your AAFCPAs advisor to help determine eligibility for the program.
• Finally, if you have already submitted an ERC claim but did not consider and remove wages and benefits charged to Federal, state, or private grants, please reach out to your AAFCPAs advisor to discuss next steps and an action plan.

If you have questions, please contact Enis Bezhani, CPA, MSA, Director at 774.512.4045 or ebezhani@aafcpa.com, Courtney McFarland, CPA, MSA, 340B ACE, Partner at 774.512.4051 or cmcfarland@aafcpa.com—or your AAFCPAs Partner.