In unprecedented action, the Internal Revenue Service (IRS) has announced an immediate freeze on all Employee Retention Credit (ERC) claims. A warning has long been on the table regarding potential abuse of these claims, but the weight of the IRS’ recent move signals a significant shift in their approach to dealing with these concerns.
As detailed in a recent JD Supra report, the IRS issued news release IR-2023-169 on September 14, 2023. From that date through to at least December 31, 2023, the Service will halt the processing of all new ERC claims. It is critical to note that this ruling only affects claims initiated on or after September 14 – those submitted before this date will face extensive delays while undergoing absolute scrutiny, according to the report.
This development presents a sudden and considerable challenge for corporate and legal professionals who have utilized the ERC to maintain financial stability throughout the pandemic era. The widespread use of these credits has now met with significant scrutiny and points towards a shift in the IRS’s approach to address potential misuse.
With increasing pressure from the IRS, legal professionals must now carefully reconsider their strategies surrounding these claims. It is now more crucial than ever for corporations to ensure thorough auditing and unimpeachable record-keeping when it comes to their tax claims.
This change serves as a palpable reminder that the repercussions of fraudulent or even inaccurately filed tax claims can pose severe consequences, triggering significant penalties, and even potential prosecution. Hence, corporations worldwide, and the legal professionals who advise them, must treat these changes with the seriousness they warrant.