On Thursday, September 14th, 2023, in a news release, IR-2023-169, the IRS Commissioner announced that they are putting a hold on processing any new Employee Retention Credit (“ERC”) claims until at least the end of the year. Note: This does not mean any new claims filed are invalid or won’t be considered.
Congress initially enacted the ERC provisions in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) which allowed eligible employers to claim a credit of up to $5,000 per employee for the period of March 12, 2020, and before January 1, 2021. The program was further extended for the first through third quarters of 2021. For 2021, the credit was increased to $7,000 per employee per quarter.
Generally, businesses and tax-exempt organizations that qualify are those that:
- Were shut down by a government order due to the COVID-19 pandemic during 2020 or the first three calendar quarters of 2021, or
- Experienced the required decline in gross receipts during the eligibility periods during 2020 or the first three calendar quarters of 2021 or
- Qualified as a recovery startup business for the third or fourth quarters of 2021.
Current understanding of IRS news release impact
The IRS believes that a significant number of new ERC claims being filed now result from aggressive promoters pressuring companies to claim the credit even though they may not be eligible. The IRS is concerned that this may put businesses at financial risk if these claims are proven to be ineligible.
The news release has indicated the following:
- The pause in processing new claims does not mean the claim is ineligible or won’t be processed.
- All ERC claims that have already been submitted will continue to be processed but may go through enhanced compliance reviews, delaying issuance of the requested refunds.
- The IRS is working on developing new initiatives to assist businesses that have fallen prey to aggressive promoters which could include a special withdrawal option.
- The IRS has intensified efforts to identify aggressive promoters and is working on hundreds of criminal cases and thousands of audits to curtail the perceived abuse.
The IRS Commissioner has indicated that to end the program early, the IRS would have to work with Congress to change the law. The IRS does not have the authority to act on its own to bring an end to the ERC program.
The IRS has published a list of red flags for aggressive marketing and questionable ERC claims.
The ERC program rules are complex but can be a valuable benefit for employers that qualify. Businesses have until April 15, 2024, to file amended Forms 941 to claim the credit for wages paid during a qualifying period during 2020 and April 15, 2025, for wages paid in any qualifying period in 2021.
We will continue monitoring guidance from the IRS on the ERC and provide updates on future guidance as it becomes available. Your GBQ tax professional can assist you with your questions and help determine if your company is eligible.