The Internal Revenue Service (IRS) has invoked a moratorium on processing new claims for the employee retention credit (ERC), leading to uncertainty within the legal sector and corporate world. The moratorium was instituted a month after the IRS shared guidance on how federal credit unions can leverage the ERC, driving concerns on the navigation of employee retention amidst grueling economic conditions. The suspension is projected to endure at least till the year’s end.
For those unfamiliar, the ERC is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees. This credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021.
The nuances of the tax credit, along with the recently imposed moratorium by the IRS, can pose challenges to corporations and law firms, with several practical implications to consider. Firstly, this hold may complicate cash flow forecasts for companies – particularly small businesses – that were banking on the tax credits to soften the fiscal blow dealt by the pandemic. Moreover, the already complicated procedures surrounding the ERC could become even more nuanced, requiring law firms to redouble their efforts to interpret and act on behalf of their clients in accordance with changes.
While the legal and corporate communities keenly await an update from the IRS on the matter, it’s advisable to stay informed about the evolving situation. Those interested in gaining more insights should consider reading a detailed briefing by law firm Woods Rogers Vandeventer Black on the issue, which can be accessed by clicking here.
However, with the moratorium in place for now and the end date uncertain, the potential legal mechanics to implement the legislation that payout of ERC stands to become a bigger challenge. To weather the storm, firms must ensure they are well-prepared to aid their clients in navigating these multifaceted issues, demonstrating the ingenuity and resilience that the legal community is known for.
Until a concrete update is provided by the IRS, corporations and law firms should observe the developments closely, gear up, and stay prepared for the upcoming changes.