9/18/2023: IRS Suspends ERC Processing until 2024
Last Thursday, IRS ordered an immediate stop to new Employee Retention Credit (ERC) processing amid a surge of questionable claims. ERC is part of the pandemic era subsidy program to incentivize businesses to keep employees on the payroll. The ERC could be up to $5,000 per employee (for 2020) and up to $21,000 per employee in 2021, so long as an eligible business paid qualifying wages. But apparently, there are a lot of frauds and scams going on. As a small business owner, I was getting calls on a daily basis to apply for ERC and the callers promised me it’s easy and free money to get and they will help me amend my tax returns. I hung up on them knowing this could not be true. I am glad that the IRS is now taking action to stop the scammers. In the statement, IRS commissioners 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. 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.
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. 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 IRS will continue to process the claims that were already filed but will take a careful look at each application. According to a WSJ article, $230B worth of ERC has been distributed so far, roughly triple the original congressional estimate!!!. ~$80B worth of ERC has been paid out since March 2023. It is kind of insane that taxpayers are footing the bills for the $10B+/month ERC scams in the past few months. I am glad this is being stopped but I hope we claw back the wrongly distributed ERC. The US government is already in a deep deep deficit (~7% GDP) and we can’t afford to hemorrhage money like this.