Internal Revenue Service (IRS) Commissioner Danny Werfel announced on September 14 an immediate moratorium on the processing of all new Employee Retention Credit (ERC) claims, citing increasing and substantial fraudulent claims that are flooding the agency. (This comes on the heels of an earlier announcement that the IRS intended to slow down the processing of ERC claims.) The moratorium will apply to all new claims filed between September 14 and December 31, 2023. The agency does not specify whether or when new claims processing will resume.

The processing time on pending claims will be lengthened from an average of three to an average of six months. The slowdown gives the agency more time to carefully review existing claims and protect unwitting, ineligible businesses from incurring costly penalties and interest repayments for funds received in error.

Recognizing, too, that many honest small businesses have been taken advantage of by unscrupulous third-party consultants, Commissioner Werfel said that the IRS is developing a process to allow these businesses to repay monies they may have already received in error without penalty. Also, a special process is being developed to allow firms with an existing, yet-unprocessed claim to rescind their submission if they discover, upon further review, that their business is not eligible. More detail on that is pending for this fall.

Meanwhile, “taxpayers are encouraged to review IRS guidance and tools for helping determine ERC eligibility, including frequently asked questions and a new question and answer guide … to help businesses understand if they are actually eligible for the credit.” The IRS is working with the Justice Department to see how to pursue and exact penalties on aggressive firms that have intentionally ignored ERC rules and pushed ineligible businesses to apply.

LeadingAge continues to closely monitor the IRS updates on the ERC, and further analysis will be forthcoming.