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What You Should Know About the IRS's Decision to Pause New ERTC Claims

The Internal Revenue Service (IRS) has recently proclaimed an immediate suspension of the processing of novel Employee Retention Tax Credit (ERTC) petitions. This determination arises in response to mounting apprehensions regarding deceitful submissions and will remain in effect until at least year-end.

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This is a direct quote from the IRS explaining how the Moratorium works (in the bottom right corner you’ll find the direct link):

“Advice for taxpayers: What to do as IRS works to help businesses facing questionable ERC claims.

As the IRS continues working on additional details on ERC, there are several steps that the agency recommends for businesses, depending on where they are in the process:

  • For those currently awaiting an ERC claim. For those who currently have an ERC claim on file, the IRS will continue processing these claims during the moratorium period but at a greatly reduced speed due to the complex nature of these filings and the need to protect businesses from being improperly paid. Normal processing times could easily stretch to 180 days or longer. The IRS cautions that many applications will be facing additional compliance scrutiny, which means the payments could take even longer to be processed. While the IRS works on compliance measures during this period, the agency cautions businesses to expect extended wait times due to the large volume of claims and the complexity of the applications.

Due to the large volumes and the need for compliance checks to protect against fraud, the IRS is unable to expedite individual claims. The IRS believes many of the applications currently filed are likely ineligible, and tax professionals note anecdotally that they are seeing instances where 95 percent or more of claims coming in recent months are ineligible as promoters continue to aggressively push people to apply regardless of the rules.”

What to expect

Notwithstanding the suspension, the IRS has affirmed its intention to persist in assessing requests submitted prior to this resolution. Nonetheless, enterprises should brace themselves for more exhaustive appraisals and protracted processing intervals, with certain applications potentially undergoing scrutiny for up to 180 days or even more.

Presently, the IRS has amassed a total of 3.6 million ERTC applications. Amongst these, roughly 600,000 applications, primarily originating from the preceding 90 days, are still pending examination and remain within the active inventory. This constitutes 15% of all ERTC applications since the program's inception.

IRS Commissioner Danny Werfel has expressed deep concern about fraudulent activities within the ERTC program, acknowledging that such schemes are adversely affecting well-intentioned businesses and the broader tax framework.

Enterprises must recognize that this pause in the processing of ERTC petitions does not signify the program's termination. Those who believe they meet the eligibility criteria can and should proceed with their submissions, cognizant of the extended evaluation timelines.

Learn more about ERTC!

The IRS has imposed this cessation in ERTC application processing to combat suspected fraudulence or questionable claims that are either endorsed or prepared by certain advisors who exhibit a lack of familiarity with the eligibility regulations or are deliberately disregarding them. Consequently, enterprises need to seek counsel from proficient tax experts well-versed in the intricacies of the ERTC.

Furthermore, the IRS has disseminated a new compendium of frequently asked questions and a freshly minted Q&A compendium to aid employers in the determination of their eligibility. This is designed to ensure that employers possess the requisite information to ascertain their genuine eligibility for credit.

Future Measures for the ERTC Program

The IRS intends to introduce a reconciliation program to assist businesses ensnared by unscrupulous promoters. It will also extend an opportunity for enterprises to retract any pending claims, thereby averting potential reimbursement dilemmas.

To intensify its battle against fraudulent activities, the IRS is collaborating with the Department of Justice and providing training to auditors to identify high-risk deceptive claims, targeting both the individuals filing these claims and those promoting them.

The Criminal Investigation Division of the IRS has disclosed that potential fraud related to COVID-19 may exceed $8 billion. As of July 2023, 252 investigations have been launched into these matters, focusing on $2.8 billion worth of dubious ERTC claims. These investigations have resulted in 15 federal indictments and six convictions, with offenders serving an average sentence of 21 months.

Moreover, the IRS is actively scrutinizing ERTC cases and meticulously evaluating thousands of dubious claims.

What’s Next?

While the ERC claims are momentarily paused, TPG’s ERTC experts are still helping clients all around the state. You can still claim your Employee Retention Tax Credits. But understandably after this important news you may have some questions.

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Reach out to one of our specialists today for a free consultation, call 909.466.7876 today, or visit our office at Rancho Cucamonga and see for yourself how we can help your business thrive!

Also, if you're in the medical or dental field learn more about the ERTC Funds for Medical and Dental Practices by reading this short article!