Tax and financial advice from the Silicon Valley expert.

IRS moratorium on processing new Employee Retention Credit claims

The IRS has announced an immediate moratorium, at least through the end of 2023, for processing new claims for the employee retention credit. New claims can still be submitted; the IRS will simply delay processing them at least until January, 2024. (IR-2023-169, September 14, 2023.

The IRS recommends that businesses considering applying for the credit seek a trusted tax preparer who actually understands the complex employee retention credit rules, not a promoter or marketer hustling to to collect a hefty contingency fee. I believe that means the IRS will tend to accept claims prepared by a CPA, enrolled agent or attorney (shown as a paid preparer on the amended payroll tax returns) and question claims prepared by other preparers.

The IRS has issued a list of red flags for potential scams of preparing improper claims of the employee retention credit. (IR-2023-170, September 14, 2023,

The employee retention credit is a tax incentive created to help businesses affected by the COVID-19 pandemic. Since the refundable credit is based on employee wages, it is often a big dollar amount.

Since the credit represents a big tax benefit, an industry has sprung up to assist businesses making claims for the credit, usually for a share of the refund.

The IRS has been flooded with claims for the credit and, in most cases, the businesses don’t qualify for it.

Tax professionals and others have pointed out that, since the credit expired December 31, 2021, most businesses that qualified for the credit have already applied for it. Clients have brought erroneous claims to their tax return preparers who have found the claims don’t qualify and need to be repaid to the IRS, or they can’t proceed with preparing income tax returns for the business.

In order to qualify, either (1) the operation of the business must have been fully or partially suspended by a government order during 2020 or the first three quarters (January through September) of 2021, (2) the business must have experienced at more than a 20% decrease in gross receipts compared to the same calendar quarter in 2019, or (3) the business was a recovery startup business for the third or fourth quarters of 2021 that began carrying on a trade or business after February 15, 2020 and had average gross receipts of $1 million or less for the three years preceding the quarter for which they are claiming the employee retention credit.

Wages used to qualify for a Paycheck Protection Loan don’t qualify for the employee retention credit. Wages not used to qualify for a Paycheck Protection Loan might qualify for the employee retention credit.

Businesses that received a restaurant revitalization grant or a shuttered venue operators grant don’t qualify for the employee retention credit.

When an employee retention credit is claimed, the tax deduction for the wages on which the credit is based is reduced on the business’s income tax return by the amount of the credit. That means the process of claiming the credit includes preparing amended payroll tax returns to claim the credit and preparing amended income tax returns to reduce the wages on which the credit is based.

Here is a link to the IRS web page, Frequently asked questions about the Employee Retention Credit.

If you wonder whether your business qualified for the employee retention credit, consult with a qualified tax professional.

Tax and financial advice from the Silicon Valley expert.