November 2023

IRS Audits & Employee Retention Credit Update


On October 31, 2023, the Internal Revenue Service (IRS) announced that, as of September 30, 2023, it has initiated 301 investigations of Employee Retention Credit (“ERC”) claims involving a total of over $3.4 billion.  The investigations are part of the IRS’s effort to combat what it believes is significant fraud or improper claims related to the pandemic era tax credit.  The IRS reported that 15 of the ERC investigations have led to criminal charges thus far with 8 cases resulting in convictions.

As part of its crackdown on ERC claims, on September 14, 2023, the IRS announced a moratorium through the end of 2023 on processing new claims filed on or after September 14, 2023.  The IRS is continuing to process the more than 600,000 claims filed before that date although at a slower pace due to the heightened scrutiny on the claims.

After the moratorium was issued, the IRS on October 19, 2023, announced a special withdrawal process for taxpayers who filed ERC claims but are now concerned about their accuracy.  By withdrawing an ERC claim under the IRS approved process, taxpayers can avoid penalties and interest that might apply to an invalid claim.  Only certain taxpayers are eligible for the withdrawal process for which the IRS has provided specific guidance.

The IRS’s aggressive focus on ERC claims will undoubtedly continue so taxpayers should review any pending claims with their professional advisors to determine if withdrawal is the best option and should consult with a tax professional if their ERC claim is audited or they become the subject of an IRS criminal investigation.

Sideman &  Bancroft tax attorneys are skilled in a handling both civil and criminal tax related cases including IRS audits. During IRS audits, we deal directly with IRS agents and work with other professionals who may be interfacing with agents.