IRS Halts New ERC Processing After Flood of Bogus Claims

The IRS has taken take several aggressive steps against fraudulent claims for the employee retention credit (ERC), including an immediate moratorium on the processing of new ERC claims, allowing taxpayers to withdraw unpaid claims, and the offer of a settlement program for those who have erroneously received the pandemic-era benefit intended to help small businesses.

These actions are aimed at stopping fraud by promoters in ERC mills, who promise to help small businesses obtain the credit, typically in return for a contingency fee based on the size of the credit, while also giving a break to the taxpayers who have fallen prey to the unscrupulous ERC promoters. According to an IRS representative, the IRS has so far paid $230 billion in ERC claims.  

IRS Commissioner Danny Werfel said in a call with reporters Thursday, September 14, 2023 that the moratorium on processing new claims will begin immediately and will continue through at least the end of 2023. He reiterated that these actions are being taken to protect the small businesses that the ERC was designed to help.  The IRS will continue to process ERC claims filed before the moratorium, but at a slower pace due to stricter compliance reviews.

The ERC "was not designed to be a gravy train for promoters flooding the IRS with ineligible applications that slows down work on ERC and other important matters for taxpayers," Werfel said.

The ERC is a refundable tax credit for businesses that paid workers during the COVID-19 pandemic while their operations were fully or partially suspended because of a government order or for those that had a significant decline in gross receipts during the eligibility period.