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IRS Alert: Update on ERC Claims

Sep 15, 2023

The Internal Revenue Service (IRS) has announced a significant change regarding the Employee Retention Credit (ERC) that has the potential to impact your ERC claims and eligibility. This action is in response to mounting concerns surrounding improper Employee Retention Credit claims, with many being found ineligible and potentially putting businesses at financial risk. The IRS aims to add protective measures to prevent future abuse and safeguard businesses from predatory and unscrupulous tactics.

Key Updates Impacting ERC Claims

Several significant changes are currently either in effect or on the horizon. Among these changes are:

  1. An Immediate Halt on Processing New ERC Refund Claims:Effective immediately, the IRS will no longer process new ERC refund claims due to concerns about potential widespread fraud. This moratorium will remain in effect until at least December 31, with the possibility of an extension as circumstances unfold.
  2. Extended Processing Time for Existing Claims:The IRS is extending its processing timeline from 90 days to 180 days for ERC refund claims already submitted. Additionally, the IRS will intensify its scrutiny of these claims at the initial stage, aiming to prevent fraudulent claims rather than relying solely on post-audit examinations. Be prepared for possible delays and additional documentation requests to verify the legitimacy of your claim.
  3. Withdrawal Option for Improper Claims:The IRS is actively working on a method to allow taxpayers to withdraw claims that may have been submitted improperly and have not yet been processed, an option that aims to help businesses avoid possible repayment issues and the payment of contingency fees. However, it's important to note that withdrawing a fraudulent claim may mitigate interest and penalties but will not exempt individuals or entities from potential criminal prosecution.
  4. Potential Reevaluation of Prior Claims: While not explicitly addressed in the IRS announcement, it is reasonable to assume that the IRS may reevaluate ERC credit claims already paid to ensure compliance. If they are implementing these changes moving forward, retrospective examination may be on the horizon.

What Should You Do?

Here's what you need to do to navigate this situation effectively:

  • Review Eligibility: If you're currently considering an ERC claim, we strongly advise you to review the ERC guidelines during this processing moratorium carefully. Seek advice from a trusted tax professional who understands the complex ERC rules.
  • Withdraw Incorrect Claims: If you've already filed an ERC claim that you believe was submitted improperly, you may have the option to withdraw it once the IRS formalizes that process.
  • Stay Informed: Keep an eye out for IRS guidance and tools that can help you determine your ERC eligibility. The IRS is also developing initiatives to assist businesses that have fallen victim to aggressive promoters.
  • Beware of Red Flags: Be cautious of aggressive marketing tactics and questionable ERC claims. The IRS has provided a list of warning signs to watch out for.

We understand that these developments may raise concerns, but our team is here to provide the support and expertise you need to navigate this evolving landscape. Reach out to your CRI tax advisor with any questions or concerns you may have regarding your ERC claims or any other tax-related matters. Our team is committed to helping you make informed decisions and protect your financial interests and compliance with tax regulations.

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