A growing number of employee retention credit scams has prompted the IRS to issue a moratorium on processing these pandemic-era credits for small businesses, effective September 14, 2023.
The moratorium is expected to last until at least December 2023. If you are concerned you may have been a victim of employee retention credit fraud, click here for tips from the IRS for protecting your small business and reporting ERC tax credit scams.
Your business may be eligible to participate in a settlement program to help you repay an erroneous refund issued because you were a victim of an ERC scam. You may also be able to withdraw a claim for an ERC if you believe that you submitted it because you were taken advantage of by an employee retention credit scam. Keep reading for more from a skilled Georgia federal investigations defense lawyer.
October 2023 update
On October 19, the Internal Revenue Service announced the details of a special withdrawal process to help those who filed an Employee Retention Credit (ERC) claim and are concerned about its accuracy.
| The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest. |
This recently introduced withdrawal option enables certain employers who have filed an Employee Retention Credit (ERC) claim but have not yet received a refund to retract their submission. By doing so, they can avoid potential future repayments, interest, and penalties. Employers currently in the process of having their ERC claims reviewed can also opt to withdraw their claims to prevent any disbursement of ineligible refunds.
This withdrawal process was implemented following the announcement on September 14 of an immediate moratorium on the processing of new ERC claims. The moratorium, set to last at least until the end of the year, was initiated due to a surge in ineligible ERC claims. While payouts for claims submitted before September 14 will continue during the moratorium, the pace of processing will be slower due to more thorough compliance reviews.
To uphold stricter compliance standards, the processing time for existing ERC claims will extend from the standard 90 days to 180 days. This duration may further lengthen if a claim undergoes additional review or audit. The IRS may also request additional documentation from the taxpayer to verify the legitimacy of the claim.
| Fact Sheet 2023-24 contains more details about the ERC withdrawal process. |
Fraudulent claims
Individuals who intentionally submitted a fraudulent claim or were involved in such misconduct, either as accomplices or conspirators, should be mindful that withdrawing the fraudulent claim does not exempt them from potential criminal investigation and prosecution.
Conducting thorough compliance reviews of existing claims submitted before the moratorium is imperative to safeguard against fraud. This not only protects businesses and organizations from penalties or interest payments resulting from fraudulent claims promoted by unscrupulous entities but also ensures the integrity of the system.
The IRS continues to caution taxpayers to exercise extreme caution when applying for the Employee Retention Credit (ERC), as there are ongoing aggressive tactics employed by marketers and scammers.
Furthermore, the IRS is actively developing guidance to assist employers who were misled into claiming the ERC and have already received payment. Additional details on this guidance will be made available in the coming fall.
Who can ask to withdraw an ERC claim?
Employers can use the ERC claim withdrawal process if all of the following apply:
- They made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
- They filed the adjusted return only to claim the ERC, and they made no other adjustments.
- They want to withdraw the entire amount of their ERC claim.
- The IRS has not paid their claim, or the IRS has paid the claim, but they haven’t cashed or deposited the refund check.
Taxpayers who are not eligible to use the withdrawal process can reduce or eliminate their ERC claim by filing an amended return. For details, see the Correcting an ERC claim – Amending a return section of the frequently asked questions about the ERC.
How to withdraw an ERC claim
To take advantage of the claim withdrawal procedure, taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyerc, summarized below.
Taxpayers whose professional payroll company filed their ERC claim should consult with the payroll company. The payroll company may need to submit the withdrawal request for the taxpayer, depending on whether the taxpayer’s ERC claim was filed individually or batched with others.
Taxpayers who filed their ERC claims themselves, haven’t received, cashed or deposited a refund check and have not been notified their claim is under audit should fax withdrawal requests to the IRS using computer or mobile device. The IRS has set up a special fax line to receive withdrawal requests. This enables the agency to stop processing before the refund is approved. Taxpayers who are unable to fax their withdrawal using a computer or mobile device can mail their request, but this will take longer for the IRS to receive.
Employers who have been notified they are under audit can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.
Those who received a refund check, but haven’t cashed or deposited it, can still withdraw their claim. They should mail the voided check with their withdrawal request using the instructions at IRS.gov/withdrawmyerc.
What is the employee retention tax credit?
The ERC is part of the 2020 CARES Act (Coronavirus Aid, Relief, and Economic Security Act), offered to businesses to cover qualified wages paid to employees from March 13, 2020 through September 30, 2021. Employers file a refund claim for any relevant quarter, and while many ERC claims have been paid, the IRS still has a pending backlog.
Why did the IRS pause new claims?
The IRS lists employee retention credit fraud as part of its “Dirty Dozen,” a list of the top tax scams of 2023. The moratorium was enacted to give the agency more time to investigate ERC program scams and protect legitimate businesses from fraudsters.
Honest business owners may have been pressured by a marketing or promotional agency into filing an ERC credit. In many cases, the party pressuring the business was perpetrating an unclaimed employee retention credit scam.
When will the moratorium end?
The IRS is pausing the review of new ERC claims until December 2023, although the moratorium could extend into the new year. In addition, the IRS may take up to 180 days to review your claim and verify it’s not part of an employee retention tax credit fraud.
Advice for taxpayers
As ERC scams abound, many qualifying business owners may be left wondering, “Can I still file for employee retention credit?” The answer depends on where the business is in the process of filing its ERC credit:
For those awaiting an ERC claim…
If your business has filed a claim already, the IRS will process it. These complex claims have strict compliance measures, slowing the process down even more. Individual claims will not be expedited.
If your business has a pending ERC applications, you may wish to explore one of these options with the help of an experienced tax preparation professional or tax attorney:
For those who have yet to file a claim…
You may wish to review the guidelines and wait to file, under the guidance of your tax attorney. The IRS recommends talking to a tax professional about your claim and being wary of an aggressive promotional firm. These entities may take a large fee upfront, promising an even larger tax credit, only to leave business owners facing repayment of an erroneous refund. An attorney can help you determine if your business qualifies and protect you against allegations of fraud or other IRS complications.
For those who wish to wait for the IRS ERC settlement program to begin
If you believe you received an ERC in error, you may be eligible to participate in a settlement program to repay the misapplied credit. This settlement program allows businesses to avoid further IRS compliance actions, audits, or other penalties.
New approach from scammers
Marketers and scammers have already revised their ERC pitches following the Sept. 14 moratorium announcement. Some are pushing employers who submit an ERC claim into agreeing to costly up-front loans in anticipation of a refund. The IRS urges taxpayers to avoid these loans and also learn the warning signs of ERC scams.
How to report ERC fraud
Who is proposing your business file for an ERC? Is it your trusted tax attorney or CPA, or is it a marketing or promotional agent? If it’s the latter, it’s likely a scam. The credit is complex, and business owners should follow the advice of their tax lawyer, not a commission-based marketing agency.
Griffin Durham Tanner & Clarkson LLC can help
You can protect your business from IRS compliance actions with the help of an experienced tax attorney from Griffin Durham Tanner & Clarkson LLC. Please contact our offices today in Atlanta at (404) 891-9150 or Savannah at (912) 867-9140 for a professional consultation.