Filed for the Employee Retention Tax Credit? You May Have to Wait.

The IRS recently announced that it has suspended processing applications for the Employee Retention Credit (ERC) until at least the end of 2023. The agency claims that it has been inundated by a flood of improper ERC claims, which are being aggressively promoted by companies offering to file claims for a percentage fee.

The IRS states that for claims that were filed before September 14, 2023, the agency will continue processing them, but due to increased fraud concerns, processing time will increase from 90 to 180 days. Processing could take much longer if the claim is audited. Auditors have been trained to identify claims posing the greatest risk, and as of the end of July, 252 investigations have been referred to the IRS Criminal Investigation division.

The ERC is a refundable tax credit that is available to certain businesses that continued paying employees during the COVID-19 pandemic. To be eligible, the business must have fully or partially suspended operations due to a government order limiting commerce, travel or group meetings due to the pandemic during 2020 or the first three quarters of 2021; experienced a significant decline in gross receipts during that period; or qualified as a recovery startup business for the third or fourth quarters of 2021. Any organization that improperly claimed the ERC must pay it back, possibly with penalties and interest. The IRS stated that it is seeing repeated instances of entities citing supply chain issues as a basis for an ERC claim, which is not a basis for eligibility.

For businesses that have filed a claim for the ERC, the IRS urges them to review the program guidelines with a tax professional to determine whether they are eligible. If the criteria were not met, the claim can be withdrawn. The IRS plans to finalize a settlement program in fall 2023 to allow businesses to repay inappropriate ERC claims.