The IRS has issued a moratorium on processing new requests to claim the Employee Retention Credit (ERC) amid concerns about improper claims and scams encouraging ineligible taxpayers to claim the credit retroactively. Keep reading to learn what the moratorium means for your clients and how to assist them.
What was the ERC?
The ERC was a pandemic-era provision created to help business owners keep and pay their employees during the lockdown. Taxpayers could claim this credit during 2020 and the first three quarters of 2021. To qualify, your client must:
- Have sustained a full or partial restriction due to government orders related to COVID-19 during 2020 or the first three quarters of 2021, OR
- Be able to show that they had a significant decline in gross receipts during the eligibility periods in 2020 and the first three quarters of 2021, OR
- Have qualified as a recovery startup business during the third or fourth quarters of 2021
Read What to Know About the Employee Retention Credit Updates to learn more about the ERC.
Why is the IRS issuing a moratorium on the ERC?
In recent months, the IRS has received an influx of amended tax returns incorrectly claiming the ERC in response to advertisements targeting business owners who may not be eligible to claim the credit. As a result, the IRS stopped accepting new ERC claims to review pending claims.
How can I help my clients avoid ERC scams?
You can help your clients avoid ERC scams by encouraging them to look out for the following signs:
- Unsolicited calls or advertisements mentioning an “easy application process”
- Statements claiming that the promoter or company can determine clients’ ERC eligibility within minutes of applying
- Upfront fees to claim the credit or fees based on a percentage of the refund amount once claiming the ERC
- Preparers refusing to provide identifying information and sign tax returns filed by the business. They do this to mitigate liability, leaving the taxpayer responsible for errors
- Aggressive claims from the promoter that the business owner qualifies for the ERC before any discussion of the business owner’s tax situation
What tactics do ERC scammers use to lure victims?
Scammers use the following tricks to get unsuspecting business owners to apply for the ERC, even if they are ineligible to claim the credit:
- Aggressive marketing – Your clients may have seen online, television, and social media advertisements or received scam text messages and phone calls. Scammers may also send out fake letters to convince business owners to claim the ERC
- Leaving out key details – Third-party promoters of the ERC will not accurately explain how the ERC is claimed and computed. Additionally, they will not share their workpapers with the business claiming the credit. Scammers may also make broad arguments suggesting that all business owners are eligible without evaluating an employer’s circumstances
- Paycheck Protection Program (PPP) participation – Scam promoters don’t tell employers that they can’t claim the ERC on wages reported as payroll costs to obtain PPP loan forgiveness
- Mistaken supply chain arguments – IRS legal guidance makes clear that supply chain disruptions do not qualify an employer for the ERC unless the supply chain disruptions are due to a government order. Employers who’ve experienced supply chain disruptions qualify only if they had to suspend their business operations because their suppliers were unable to provide goods or materials due to a government order.
FAQS about the ERC Moratorium
What happens if I claimed the ERC for my ineligible client?
If you improperly claimed the ERC for your client, you must instruct them to give the money back if they already received the credit. The IRS is currently working on a settlement initiative for taxpayers who incorrectly claimed the ERC and want to repay it. If you filed an improper claim for your client and it hasn’t been processed yet, you can withdraw the claim for your client.
How do I withdraw an ERC claim for my client?
If you improperly claimed the ERC for your client, you can withdraw an amended return that includes the ERC claim if their return hasn’t been processed at the time of the withdrawal. However, if the IRS has already processed you’re client’s amended return, the next steps depend on your client’s situation.
- If your client hasn’t received a refund and hasn’t been notified that their claim is under audit, then they must request a withdrawal.
- If our client hasn’t received a refund and has been notified that their claim is under audit, then they must submit a withdrawal request and send it to their examiner directly.
- If your client has received a refund check but hasn’t cashed it yet, they must prepare a withdrawal request, void the check, and include a note indicating the reason for the withdrawal on both the check and the withdrawal request. Advise them to make copies of these documents for their records and mail the original copies to the address below:
Cincinnati Refund Inquiry Unit
P.O. Box 145500
Mail Stop 536G
Cincinnati, OH 45250
For additional information and in-depth steps to withdraw an ERC claim, visit the IRS website.
How can my clients determine if they are eligible to claim the ERC?
If your clients are interested in claiming the ERC, refer them to the IRS eligibility guide.
When can I submit a new ERC claim for my client?
The IRS is planning for the moratorium to last until at least December 31. However, there’s a chance it may continue into 2024. To get the latest info about the moratorium, visit the IRS website.
What if my client already claimed the ERC and is waiting to hear back from the IRS?
The IRS currently aims to process existing claims within 90-180 days. If you have a client whose claim is taking longer than that timeframe, contact the IRS.
Why am I still hearing about the ERC if it’s a pandemic-related provision?
There’s still talk of the ERC because you can claim it retroactively for your clients. As of 2023, the deadline to claim the ERC for tax year 2020 is April 15, 2024. For the first three quarters of 2021, you can claim the ERC until April 15, 2025.