The ERC Moratorium: What Does It Mean For Your Business?

On September 14, 2023, IRS Commissioner Danny Werfel ordered an immediate moratorium on processing new claims for the Employee Retention Tax Credit (ERC), a pandemic-era relief program.

This temporary measure will run through at least till December 31 this year, if not longer. Unsurprisingly, this move has stirred no shortage of questions among business owners: Does this mean the ERC is over? What does this mean for new and previously submitted claims? What impact will this decision have on businesses? And what will the future hold for the ERC program?

In this article, we’ll explore why the IRS has taken this step, what it means for businesses, and how you can best navigate this change. Continue reading to discover more.

Did the IRS cancel the ERC program?

The short answer: No, the IRS has not axed the Employee Retention Credit; it has merely temporarily stopped processing new claims.

In fact, the IRS does not even have the power to end the program entirely — only Congress and the President could do that.

Furthermore, this pause does not mean that the IRS will cease to process previously filed claims or will never again process valid ones. Payouts for existing claims will continue, but at a slower pace, and, as mentioned, the processing of future claims will eventually resume.

In the meantime, however, the IRS is also intensifying compliance reviews during the moratorium, including audits and criminal investigations on questionable claims and promoters. This is a part of the IRS’s strategy to mitigate fraudulent claims and protect honest businesses from potential penalties and interest associated with fraudulent claims.

Why is the ERC paused?

This significant move was necessitated by a surge in questionable ERC claim submissions, an issue that has raised grave concerns among tax professionals and the IRS.

The ERC is a Covid-era provision created to provide financial relief to businesses whose operations were hampered due to pandemic-induced restrictions. However, in recent months, the IRS has noticed an influx of improper claims, leading to rising concerns about fraud and scams targeting ineligible taxpayers. For example, aggressive promoters promise quick and easy access to the ERC, regardless of the business’s eligibility status.

In many instances, these promoters charge hefty upfront fees or fees based on a percentage of the refund amount, leaving businesses in a precarious financial situation if they have to repay the credit due to ineligibility. The promoters often refuse to sign tax returns filed by the businesses, thereby mitigating their own liability and leaving the taxpayers responsible for any errors.

The IRS has clarified that the moratorium is a protective measure against the rising number of fraudulent claims and a strategy to ensure the credit reaches the intended recipients and isn’t misused.

In the meantime, the agency is working on initiatives to help victims of aggressive promoters, including a settlement program for repayments and a withdrawal option for claims that have not been processed. More details on these initiatives are expected to be released in the fall.

Finally, to address fraud in the ERC program, the IRS is collaborating with the Justice Department and has initiated investigations into potentially fraudulent claims.

What does the ERC moratorium mean for businesses?

The moratorium could impact businesses planning to file a new ERC claim.

However, businesses should not view this as a complete shutdown of the ERC program. Instead, they should use this time to review their eligibility for the ERC thoroughly, consult with trusted tax professionals, and ensure they meet all the qualifications before filing a claim when the moratorium is lifted.

Depending on their current situation, businesses are advised to consider the following:

  • For Those Awaiting an ERC Claim: Businesses with pending ERC claims should be aware that processing times will be significantly delayed due to the complexity of the claims and the need for additional compliance checks. Normal processing times could extend to 180 days or longer. The IRS cannot expedite individual claims during this period. Many of the applications being submitted are likely ineligible, with reports suggesting that a large portion of recent claims need to be revised due to aggressive promotion by promoters.
  • For Those Who Haven’t Filed a Claim Yet: Businesses considering filing an ERC claim are urged to carefully review the ERC guidelines, especially during the moratorium. The IRS recommends consulting with a trusted tax professional rather than relying on promoters or marketing firms, which may charge substantial fees. A new question-and-answer guide can also provide valuable information to determine eligibility. Avoiding an improper claim is crucial to prevent complications with the IRS.
  • Withdraw an Existing Claim: Businesses that have already filed an ERC claim, which is currently pending, should review the program guidelines with a trusted tax professional. If they believe their claim was submitted incorrectly, even if their case is under audit, they can withdraw the claim. More details about this process will be provided soon.
  • Wait for the IRS ERC Settlement Program: The IRS plans to introduce a settlement program in the fall for businesses that have received an ERC but now believe it was claimed in error. This program will enable businesses to repay the ERC claims and avoid penalties and future compliance action. The IRS is also exploring options for businesses that paid promoter contingency fees from their ERC payments.

Can businesses claim the ERC retroactively?

Yes, despite the moratorium, businesses can still claim the credit retroactively for eligible periods.

The credit can be claimed for qualified wages paid during 2020 and the first three quarters of 2021. The deadline to claim the ERC for tax year 2020 is April 15, 2024, and the deadline for the first three quarters of 2021 is April 15, 2025.

Retrospective claims will be subject to the same rules and guidelines as regular ERC claims. Therefore, businesses should carefully review the eligibility criteria and consult a trusted tax professional to ensure they meet all requirements.

Warning signs of ERC scams

Scammers use various tactics to lure businesses into filing for the ERC, regardless of eligibility. These tactics include aggressive marketing through online advertisements, social media, and unsolicited calls or text messages.

Often, these promoters provide incomplete or incorrect information about the ERC, making broad claims of eligibility without evaluating the business’s specific circumstances. They often leave out key details about how the ERC is claimed and computed, leading businesses to believe they are eligible when they may not be.

The IRS has provided guidance on red flags to watch out for when it comes to ERC scams. These include:

  • Unsolicited calls or advertisements promoting an “easy application process” for the ERC.
  • Promises of determining ERC eligibility within a few minutes.
  • Demands for hefty upfront fees to claim the credit.
  • Fees based on a percentage of the refund amount received by claiming the ERC.
  • Promoters refuse to provide identifying information and sign tax returns filed by the business.

Businesses should remain vigilant about these warning signs and report any suspicious activities to the IRS.

The future of the ERC program

The future of the program beyond 2023 remains to be determined. The moratorium could extend into 2024, or the IRS may implement additional safeguards to prevent fraudulent claims when processing resumes.

Meanwhile, tax professionals can help you navigate the complexities of handling existing claims during the moratorium, advise you on the possibility of claiming the ERC retroactively, and keep you updated on any changes or news from the IRS regarding the ERC program.

As the situation evolves, staying informed and seeking professional advice remains the best course for businesses. You may also use the period to thoroughly review your eligibility for the ERC and prepare for the resumption of claim processing.

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Jeff Coyle, CPA

Jeff Coyle, CPA, Partner of Rosenberg Chesnov, has been with the firm since 2015. He joined the firm after 20 years of business and accounting experience where he learned the value of accurate reporting, using financial information as a basis for good business decisions and the importance of accounting for management.

He is a diligent financial professional, able to manage the details and turn them into relevant business leading information. He has a strong financial background in construction, technology, consulting services and risk management. He also knows what it takes to create organizations having built teams, grown companies and designed processes for financial analysis and reporting.

His business experience includes:

Creating and preparing financial reporting, budgeting and forecasting.
Planning and preparation of GAAP and other basis financial statements.
Providing insight on financial results and providing advice based on those results.

Jeff also has a long history of helping individuals manage their taxes and plan their finances including:

Income tax planning and strategy.
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Audit support.
General financial and planning advice.
Prior to joining the firm in 2015, Jeff was in the private sector where he held senior financial and management positions including Controller and Chief Financial Officer. He has experience across industries, including construction, technology and professional services which gives him a deep understanding of business.

Jeff graduated from Montclair State University, he is a CPA and member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants and New Jersey State Society of Public Accountants.

Jody H. Chesnov, CPA

Jody H. Chesnov, CPA, Managing Partner of Rosenberg Chesnov, has been with the firm since 2004.  After a career of public accounting and general management, Jody knows the value of good financials.  Clarity, decision making, and strategy all start with the facts – Jody has been revealing the facts and turning them into good business results for more than three decades.

He takes a pragmatic approach to accounting, finance and business. His work has supported many companies on their path to growth, including helping them find investors, manage scaling and overcome hurdles.  His experience and passion for business reach beyond accounting and he helps businesses focus on what the numbers mean organizationally, operationally and financially.

He has a particular expertise in early-stage growth companies.  His strengths lie in cutting through the noise to come up with useful, out of the box, solutions that support clients in building their businesses and realizing their larger visions.

Prior to joining the firm in 2004, Jody was in the private sector where he held senior financial and management positions including General Manager, Chief Financial Officer and Controller.  He has experience across industries, which gives him a deep understanding of business.

Jody graduated with a BBA in Accounting from Baruch College, he is a CPA and member of the American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants.

In addition to delivering above and beyond accounting results, Jody is a member of the NYSCPA’s Emerging Tech Entrepreneurial Committee (ETEC), Private Equity and Venture Capital Committee and Family Office Committee.  

He is an angel investor through the Westchester Angels, and has served as an advisor for many startup companies and as a mentor through the Founders Institute.

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