IRS announces moratorium on new Employee Retention Tax Credit claims: Key observations

On September 14, 2023, the Internal Revenue Service (IRS) announced a moratorium on processing new Employee Retention Tax Credit (ERTC) claims. Specifically, new ERTC claims related to the congressionally mandated COVID-19-era relief program will not be processed until at least 2024. Between the announcement date and the conclusion of the moratorium, the IRS will continue to process previously filed claims.

The announcement provided that the IRS is taking this extraordinary step due to concerns over aggressive marketing and promotion of the ERTC by promoters filing questionable or even fraudulent claims. The IRS announcement also warned that processing times, audit referrals, and criminal investigations of businesses filing dubious claims will also increase. Further, taxpayers should expect that the IRS may seek additional documentation to support claims.

With the stricter compliance reviews in place during this period, the standard processing time for an existing ERTC claim may be expected to increase from 90 days to 180 days; even longer processing times should be anticipated if a claim is subject to further review or audit. The IRS indicated that, later this fall, it expects to announce amnesty and settlement programs for those who have improperly received ERTC amounts and/or improperly filed ERTC claims.

Key observations

Although some reports have described the IRS announcement as a moratorium on claims, that is likely not the proper characterization. Instead, we believe the moratorium is on claims processing. The IRS has expressed a concern that there has been a spike in claims in recent months and that some of these may be fraudulent (eg, claims with false or invented payrolls, claims taken with no supporting data) and has decided to prioritize a review of the pending claims through the end of the year. In order to focus on the pending claims, the IRS has indicated that it will not be able to begin processing claims filed after September 14, 2023 until at least January 2024.

Arguably, the IRS has the authority to prioritize its work based on the volume of pending claims. However, eligible taxpayers have the right to continue to file legitimate claims for processing when the IRS resumes processing newly filed claims. When processing resumes, the IRS is likely to review claims chronologically from the date these new claims were filed. 

As such, there likely is an advantage to filing claims sooner rather than later; prudent taxpayers will not wait until January 2024 to make any valid claims. Additionally, taxpayers are encouraged to carefully review their supporting documentation and seek professional assistance prior to either filing a claim or joining the to-be-announced IRS amnesty or settlement programs.

For more information, please find our previous alert or contact any of the authors.