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Over the last several months, the IRS has issued multiple warnings about the aggressive Employee Retention Tax Credit (ERTC) marketing campaigns targeting businesses. These efforts often encourage ineligible taxpayers to apply without knowing the organization’s tax situation while charging high upfront fees. These promoters will also refuse to sign the return, placing all the risk on the taxpayer. The truth is that the ERTC is a complex federal tax credit requiring a detailed review of pandemic activities to ensure eligibility criteria is satisfied. Companies that improperly file are not only required to repay the credit but may be subject to fines and penalties.
On September 14, 2023, the IRS announced a moratorium on ERTC claims processing through at least December 31. As outlined in IR-2023-169, the moratorium was implemented due to growing concerns about the substantial number of ineligible new claims that put businesses at financial risk from aggressive marketing. The agency will continue to work on previously filed claims, but due to increased fraud concerns, processing times are expected to increase. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.
The agency has emphasized that the moratorium only applies to ERTC claims made after September 14, 2023. Those submitted prior to that date will continue to be processed but at a slower rate. Stricter compliance reviews will extend the average processing time from 90 to 180 days – longer if there is a need for additional review of an audit. The IRS also reserves the right to seek additional documents to validate legitimacy. The enhanced review process not only protects against fraud but also protects businesses from facing large penalties and interest arising from improperly filed claims.
New Withdrawal Program
The IRS Is finalizing a new special withdrawal option for businesses that have filed an ERTC claim, but the claim has yet to be processed. The program’s purpose is to allow businesses that were potentially misled by aggressive promoters to avoid repayment issues and paying promoter contingency fees. When launched, this program will be available for the 600,000 claims awaiting processing. It is important to note that using this program will not shield those who intentionally filed a fraudulent claim from criminal investigation and prosecution.
There are several important points to consider looking ahead depending on where a taxpayer is in the filing process, including:
- Businesses Yet to File – The ERTC program is still available to those meeting eligibility criteria. While it is certain the processing times will now take much longer, that does not mean a business should not apply. However, it is important to work with a trusted provider. A Certified Public Accountant should take time to carefully review operations to determine if the company is eligible and prepare the needed documentation.
- Withdraw a Claim – For those with a pending claim, take the time to carefully review program guidelines with a trusted tax advisor. Recently, the IRS has reported a sharp increase in claims that cite supply chain issues as the reason for the claim. The reality is that only a small percentage of these are eligible. Those companies that believe a claim was improperly submitted and has not been paid or processed should consider withdrawing it. This option is also available to those with cases currently under or awaiting audit.
- IRS Settlement Program – The IRS is finalizing a new settlement program that will allow companies that have improperly received a credit to repay it. While it will not be available until autumn, the program will allow businesses to avoid penalties and future compliance actions.
The moratorium on processing provides additional time for the IRS to evaluate the legitimacy of submitted claims. Remember, eligible companies can still submit claims, but receiving approval will take significantly longer. If you are concerned that the credit you received or your current application is at risk, JLK Rosenberger can help. For additional information call 949-860-9902 or click here to contact us. We look forward to speaking with you soon.