IRS Employee Retention Credit Moratorium still in effect; taxpayers left with limited options for relief

In September 2023 the IRS took the unprecedented step of placing a mortarium on Employee Retention Tax Credit (ERC or ERTC) claims, citing what they felt were increasing and alarmingly high levels of claims that were improper to outright fraudulent. The intent of the pause was to shift agency resources into combating this abuse, including the development of a withdrawal process for unprocessed claims that taxpayers that may not be eligible but were otherwise told so by marketing firms and for a voluntary disclosure program to help root out the bad actors and assist taxpayers that were misled into returning funds.

The original notice said “at least” December 31, 2023, which lead most to believing the claims would start to be processed again in January 2024 when the announcement was first made. It was announced as that part of this change the process for reviewing these claims going forward would be subject to a stricter review and therefore move from the stated processing time of 90 days to 180 days.

As early as late November 2023 it was apparent, based on conversations with IRS officials both formally and informally, that the December 31st date was not firm and that claims processing would not be restarted in January 2024. The IRS has yet to give more than vague estimates – the most recent being “late spring” – as we approach the first day of summer that is yet another estimate that will be missed. Erin Collins, head of the Taxpayer Advocate Office recently stated at a large AICPA event in June that the answer she is receiving is “Soon” and that she is being told “”And I keep hearing soon, soon, that they’re going to be coming out with guidance as to how to move that whole pile into either … allow them, deny them, or send them to audit but do something,” “We can’t just have them sit there.”, according to an article from the Journal of Accountancy.

The Taxpayer Advocate office apparently had some limited success in helping taxpayers who have a “hardship” – typically defined at:

1. You are experiencing a financial hardship or about to suffer a financial hardship
2. You are facing an immediate threat of negative action
3. You will incur significant costs if relief is not granted
4. You will suffer irreparable injury or long term adverse impact

Financial hardship is generally meant to include situations where taxpayers may lose their house, not be able to meet basic living needs or transportation. It is likely a business would need to show that they were otherwise sustainable but would close if not for the ERC funds; as most of these funds were originally meant to help during the COVID-19 pandemic it may be hard to prove a hardship still exists 3-4 years after the funds were originally set to be disbursed. Taxpayers should set their expectations accordingly on the ability to both claim a hardship and have the Taxpayer Advocate assist.

There also exists provisions within the Internal Revenue Code that allow taxpayers to sue for refund claims if they have not received the funds within six months of filing. This option may be extreme (and incur extensive litigation costs) with the IRS and may not be a realistic option for most taxpayers and equally may not generate much in terms of immediate relief, but the option does exist. We have not yet heard of any taxpayers going this route so are unable to speak to its effectiveness as a solution.

This unknown has been very difficult for taxpayers, some of which have been waiting over a year or longer to receive these funds. This is certainly a case of a few bad apples spoiling the bushel, but unfortunately, taxpayers are largely at the mercy of the IRS for these claims to be processed. The options that exist are not going to be quick either – a refund lawsuit or working through the Taxpayer Advocate office will still take months, leaving most employers waiting in “wait and see mode” and heeding the IRS advice to “be patient.”