The IRS Just Shut Down Employee Retention Credit! Are You at Risk?

employee retention credit irs

The IRS just made an unprecedented announcement. They’re moving fast, to protect the American taxpayer from scams, from these so called ERC or employee retention tax credit promoters.

If you didn’t know, this was the $26,000 tax credit for small businesses who kept employees on payroll during the pandemic.

The IRS has essentially halted processing of NEW ERC claims until 2024, because of a surge of “questionable claims”, and concerns from tax professionals like myself.

I and many in the industry have been shouting from the rooftops, that these ERC promoters are ripping off the american tax system, with fraudulent Employee Retention Tax Credit claims.

I’ll break down what it all means, what to do if you’re waiting for your ERC claim, and what to do if you’re a victim of an ERC promoter.

And stick around until the end—I've got a voicemail from Snoop Dogg, courtesy of one of these alleged questionable promoters, that you won't want to miss.

Here is a quote from the IRS news release…

"Amid rising concerns about a flood of improper Employee Retention Credit claims, the Internal Revenue Service today announced an immediate moratorium through at least the end of the year, on processing new claims for the pandemic-era relief program… this is to protect honest small business owners from scams."

"IRS Commissioner Danny Werfel ordered the immediate moratorium, beginning today, to run through at least Dec. 31, 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."

Here’s what that means:

The IRS just put a stop on processing new Employee Retention Credit claims until at least the end of the year. Why? Because, they're worried about ERC scammers tricking honest businesses into making false claims. This also helps to protect the loss of trillions of dollars due to the huge ERC fraud problem.

Well, it’s about time. The tax professionals community has been warning the public and the IRS about the rampant fraud and abuse going on with employee retention tax credits.

This is really, really, serious. If someone improperly received ERC money, or dealt with an ERC promoter, they’ve got problems. They need to get some professional help sooner rather than later.

I’ll leave my booking link down below, if you need help. I’ll help you if I can, or I’ll direct you to someone else, if I can’t.

If you’re waiting for your ERC claim, and it’s currently being processed, then you need to understand that processing times will be a lot longer. It was normally 90 days, but now expect to wait 180 days, and even longer, especially if the ERC claim requires additional review or goes for audit. The IRS could also ask for additional information to ensure it is a legitimate claim.

If the IRS hasn’t started processing your ERC claim, then just know that you probably fall under the processing moratorium and you’re just going to have to wait until the IRS figures out what they’re going to do next.

Here’s what’s going on at the IRS. They’ve shifted their focus to review questionable claims for ERC tax credits. They’re focusing on audit work and criminal investigations on the so called promoters, and the businesses filing the fraudulent claims.

The IRS also announced that hundreds of criminal cases are currently being worked on, and thousands of ERC claims have been referred out for audit.

Here’s what the IRS Commissioner said about ERC scammers:

"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. The further we get from the pandemic, the further we see the good intentions of this important program abused."

Basically, scammers are out of control, and the IRS has finally put their foot down on ERC fraud.

According to Michael Sullivan, former IRS ageng, he tells me the IRS has only 250 agents nationwide to handle over 1.4 million ERC claims. In this department, the IRS is seriously understaffed, and contributes to the inability of the IRS to stop the fraud and abuse. They are hiring a couple thousand new agents, but even that may not be enough.

This is an avalanche of work the IRS is facing, and I really don’t know how they’re going to handle it all. Invariably, they won’t be able to prosecute all of the ERC fraud. Many will fall through the cracks, but the ones that don’t, they’ll be facing a world of hurt with IRS audits, having to repay ERC money, along with penalties and interest. For many, It will be financially devastating.

FYI, you need to click on the video for the Snoop Dogg audio ;) 

Thanks for reading and see you in the next blog post!

About The Author

Noel Lorenzana is an Illinois-licensed, Registered Certified Public Accountant with over 20 plus years of experience.

Through his online educational content, YouTube videos, easy-to-understand courses and 1-on-1 consulting, he gives you the tools to become tax savvy for yourself. 

Disclaimer: Any accounting, business or tax advice contained in this article, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.