THE ERC COMES FULL-CIRCLE WITH IRS MORATORIUM
Mountain of Relief for Small Businesses – Now an Avalanche of Fraud
Over a year ago, we reported on the Employee Retention Credit (ERC) included in the CARES Act providing $80 billion dollars to encourage employers to retain employees at the height of the COVID-19 pandemic in early 2020. The driving principle for Congressional adoption of the incentive was to help pandemic-impaired businesses and tax-exempts to retain jobs and trigger job creation.
Many employers were and are confused as to qualification requirements and application procedures. Consequently, many of those employers who may qualify ignored participation in the program … one of considerable financial significance. The 2020 credit can be as much as $5,000 per employee … the 2021 credit up to $21,000 per employee.
Notably, for employers that have not yet applied, the ERC can be claimed for three years after the filing date of the original payroll returns.
The lack of understanding by employers regarding application procedures and administrative burdens coupled with the sheer dollar amount of potential tax credits triggered an open invitation for fraudsters … a caution we shared earlier this year.
As we reported, the IRS chimed in on abuses by third-party “advisors” for blasting ads on radio and the internet hyping ERC refunds. The agency’s concern was underscored by including ERC fraudsters in its annual Dirty Dozen summary.
Fueled by aggressive third-party marketing to ineligible applicants, the IRS was deluged with new ERC claims … a substantial share of which are unqualified.
In mid-September, the IRS issued the following notice regarding processing ERC claims.
To protect taxpayers from scams, IRS orders immediate stop to new Employee Retention Credit processing amid surge of questionable claims; concerns from tax pros, aggressive marketing to ineligible applicants highlights unacceptable risk to businesses and the tax system.
Moratorium on processing of new claims through year’s end will allow IRS to add more safeguards to prevent future abuse, protect businesses from predatory tactics; IRS working with Justice Department to pursue fraud fueled by aggressive marketing.
IRS Commissioner Danny Werfel ordered the immediate moratorium, following growing concerns inside the tax agency, from tax professionals as well as media reports that a substantial share of new claims from the aging program are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.
The IRS continues to work previously filed ERC claims received prior to the moratorium but emphasizes that payouts for these claims will be at a slower pace due to the detailed compliance reviews
IRS Commissioner Danny Werfel said, “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. For those people being pressured by promoters to apply for the Employee Retention Credit, I urge them to immediately pause and review their situation while we look to add new protections and safeguards to stop bad claims from ever coming in.”
He continued, “In the meantime, businesses should 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. Businesses that receive ERC payments improperly face the daunting prospect of paying those back, so we urge the utmost caution. 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 above presentation is meant as an overview only.
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