IRS Stops Processing of New ERC Claims
On September 14, 2023, the Internal Revenue Service announced that it would immediately halt the processing of new Employee Retention Credit (ERC) claims through at least December 31, 2023. This moratorium is due in large part to the IRS’s belief that new ERC claims are largely “dubious” and the IRS believes that it needs more time for enhanced review of those claims.
This latest action by the IRS is further confirmation of its commitment to crack down on ineligible and even fraudulent claims that are made on the pandemic-era program. The IRS also reiterated its warning against aggressive promoters of the ERC who take a contingency fee from the organizations’ ERC claims. The IRS has already initiated over 250 criminal investigations into aggressive ERC companies, and 15 of those criminal investigations have resulted in federal charges being filed.
The IRS also provided several links for organizations that need help determining eligibility for the ERC, including a new question and answers guide that acts as a decision tree for organizations exploring the ERC or wanting to determine whether their claims are valid. The entire IRS Notice is available at https://www.irs.gov/newsroom/to-protect-taxpayers-from-scams-irs-orders-immediate-stop-to-new-employee-retention-credit-processing-amid-surge-of-questionable-claims-concerns-from-tax-pros.
Depending on where your church is in the ERC process, the following suggestions are offered:
• If you have already made an ERC claim, have received your funds, and are now wondering if you were eligible – You should reach out to a trusted tax professional for an objective assessment of your eligibility. If you determine that you were ineligible for part or all of your ERC claim, the IRS is in the process of creating a settlement program for taxpayers who made an ERC claim that they believe to be in error. The IRS has announced it will provide more details this fall on the “payback” process.
• If you have already made an ERC claim, have not received your funds, and are now wondering if you were eligible – It is recommended that you still reach out to a trusted tax professional to determine whether your claim is eligible. Then, if you determine that you are ineligible for some or all of the claim, you may withdraw the claim while it is being processed.
The IRS noted that payouts for existing claims will continue during the moratorium period, but at a slower pace due to detailed compliance reviews. The standard processing goal will increase from 90 days to 180 days (or longer if the IRS determines that the claim warrants further review or audit).
• If you have not yet made an ERC claim – You must wait to submit your claim until the moratorium on processing the ERC is lifted, which will be at least December 31, 2023. The date could be extended into 2024, depending on how long it takes the IRS to engage in its enhanced review of current ERC claims. The IRS recommends that you work with a trusted tax professional to determine eligibility before submitting an ERC claim.
If your church IS eligible for the ERC, you should certainly keep the funds provided or keep your application for funds active. However, we have repeatedly suggested that you use a local accounting firm that provides services to non-profits to assist you in your application for ERC credits. Problems have arisen because many contingency fee companies, not well versed in tax laws, have popped up to “help” churches claim this credit without adequately training or supervising their employees. Because these companies get a fee based upon how much the church gets from the government, some have “stretched” the numbers to recover a larger amount from the government – and thus a larger fee for themselves.
Regardless of how reputable the contingency fee company is that you used, it is recommended that you have a trusted certified public accounting firm review your ERC application to make sure that proper credits were claimed. If it is determined by the IRS that you wrongly claimed ERC, the church will be required to return the excess funds, pay interest on the money, and a substantial penalty. If the claims were blatantly false, the IRS could also file civil or criminal fraud charges as well.
It must be remembered that the ERC does NOT apply to wages of ministers. Only FICA employees are included in the calculation of the ERC credit.
NOTE: This article was submitted by Art Rhodes, CEO of Church of God Benefits Board for the benefit of ministers and local churches. Portions of this article were provided by CapinCrouse, a national accounting firm that specializes in non-profits and churches.
