The Internal Revenue Service (IRS) has taken decisive action by announcing an immediate halt to the processing of new Employee Retention Tax Credit (ERTC) claims due to mounting concerns over fraudulent applications. This suspension will remain in effect until at least the end of the current year.
While new ERTC claims are on hold, the IRS has assured that it will continue to process claims submitted prior to this decision. However, businesses should brace themselves for heightened scrutiny and extended processing timelines, with some claims possibly taking up to 180 days or more to undergo evaluation.
To provide some context, the IRS has received a substantial 3.6 million ERTC claims to date. Among them, approximately 600,000 claims, primarily from the past 90 days, remain in open inventory and await review. This constitutes 15% of all ERTC claims filed since the program’s inception.
IRS Commissioner Danny Werfel has voiced deep concerns about fraudulent activities within the ERTC program. He highlighted that these scams are not only negatively impacting well-meaning businesses but also undermining the integrity of the broader tax system.
It is crucial for businesses to note that this temporary pause in ERTC claims processing does not signify the end of the program. Those who believe they meet the eligibility criteria should still consider applying, albeit with an awareness of the extended processing times. Seeking guidance from a knowledgeable tax professional well-versed in the complexities of the ERTC program is highly recommended.
In an effort to provide clarity and assistance to employers, the IRS has released a new set of frequently asked questions and a Q&A guide. These resources aim to help employers determine their eligibility and ensure they possess the necessary information to claim the credit legitimately.
The IRS intends to implement a settlement program to aid businesses that have fallen victim to fraudulent promoters. Furthermore, it will offer businesses the opportunity to withdraw any pending claims to prevent potential repayment issues.
To combat fraud more effectively, the IRS is working closely with the Justice Department and training auditors to identify high-risk fraudulent claims, targeting both the individuals filing these claims and those facilitating them.
Highlighting the severity of the situation, the IRS’s Criminal Investigation Division has disclosed that potential fraud related to COVID-19 may amount to over $8 billion. As of July 2023, they have initiated 252 investigations focused on $2.8 billion in questionable ERTC claims. These investigations have resulted in 15 federal charges and six convictions, with convicted individuals serving an average sentence of 21 months.
In addition to these efforts, the IRS is actively conducting audits of ERTC cases and closely scrutinizing thousands of suspicious claims.