According to ZeroHedge, the tax bureau cited "rising concerns about a flood of improper Employee Retention Credit (ERC) claims" for the moratorium. No new claims will be reviewed or processed until early 2024. The stoppage seeks "to protect honest small business owners from scams," according to an IRS statement.
The statement said IRS Commissioner Danny Werfel "ordered the immediate moratorium … following growing concerns inside the tax agency and from tax professionals, as well as media reports, that a substantial share of new claims from the aging program are ineligible." The moratorium will run through at least Dec. 31, it added.
According to Werfel, the moratorium "will help protect taxpayers by adding a new safety net onto this program to focus on fraudulent claims and scammers taking advantage of honest taxpayers."
"The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in," he said. "The further we get from the pandemic, the further we see the good intentions of this important program abused.
"The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants." (Related: Tax audit representation expert says new AI program used by IRS to target alleged tax evaders is EXTREMELY FLAWED. )
The IRS head also advised those being pressured to apply for the ERC to "immediately pause and review their situation" instead of pushing forward. He also advised businesses to "seek out a trusted tax professional who actually understands the complex ERC rules, not a promoter or marketer hustling to get a hefty contingency fee" reaching as high as 25 percent at times.
Can't fool the taxman: Businesses caught duping the IRS face serious repercussions
"Businesses that receive ERC payments improperly face the daunting prospect of paying those back, so we urge the utmost caution," warned the IRS.
"Anyone who improperly claims the ERC that they must pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse financial position if it has to pay back the credit than if the credit was never claimed in the first place.
Per ZeroHedge, the ERC was put in place during the Wuhan coronavirus (COVID-19) pandemic to encourage small business to retain their employees on payroll. The program offered a refundable tax credit for businesses that paid employees while being shut down due to lockdowns and other pandemic restrictions. Claimants are required to adhere to the ERC's "precise requirements" before being granted the tax breaks, however.
The IRS has received 3.6 million ERC claims to date. However, there are still about 600,000 returns in its open inventory – representing 15 percent of all ERC claims since the program opened. Most of these were received in the last 90 days.
Meanwhile, IRS Criminal Investigation (IRS-CI) – the federal law enforcement agency in charge of tax crimes – is actively working to identify fraud and promoters of fraudulent claims. These fraudsters will be referred for potential prosecution by the Department of Justice.
According to the statement, IRS-CI has initiated 252 investigations involving over $2.8 billion of potentially fraudulent ERC claims as of July 31, 2023. Fifteen investigations have resulted in federal charges, with six of these 15 resulting in convictions. Of the six convictions, four have reached the sentencing phase with 21 months being the average sentence.
"[IRS-CI's] work is in addition to ERC audits that have started. The IRS has already referred thousands of ERC cases for audit," it continued.
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