The Internal Revenue Service (IRS) has recently intensified its efforts to address dubious claims regarding the Employee Retention Credit (ERC). This move underscores the need for businesses to stay vigilant and informed about the rules governing this tax credit. Here’s what you need to know:
Disallowance of Ineligible ERC
Claims
Sending Disallowance Letters: The IRS is mailing over 20,000 letters to entities notifying them of disallowed ERC claims. This action targets claims from entities that either did not exist or did not have paid employees during the eligible period, thus preventing improper ERC payments.
Key Problem Areas: The disallowed claims mainly focus on two issues: entities not in existence during the eligibility period (March 13, 2020, to December 31, 2021) and entities with no paid employees during this period.
Ongoing Review and Compliance Efforts
Increased Scrutiny: The IRS has ramped up its review of ERC claims, partly in response to misleading marketing campaigns targeting small businesses. This enhanced scrutiny includes a moratorium on processing new ERC claims until at least the end of 2023.
Voluntary Disclosure Program: The IRS is finalizing a special voluntary disclosure program for ERC claims, providing an opportunity for those who received questionable payments to rectify their situation voluntarily.
Withdrawal Option for ERC Claims
Special Withdrawal Process: Taxpayers have the option to withdraw their full ERC claim under a special process. This is particularly relevant for those who have filed an ERC claim but have not yet received a refund. Withdrawing the claim can help avoid future repayment, interest, and penalties.
Avoiding Penalties: Withdrawn claims will be treated as if they were never filed, and the IRS will not impose penalties or interest. This withdrawal option is especially helpful for small business owners who may have been misled into filing ineligible claims.
Caution and Eligibility Review
Exercise Caution: The IRS advises extreme caution before applying for the ERC, warning against aggressive marketing tactics and scams. It's important to review the ERC requirements thoroughly and consult with a trusted tax professional about eligibility.
Resources for Information: For detailed information on ERC eligibility, refer to the frequently asked questions and the ERC Eligibility Checklist, available as an interactive tool or a printable guide.
The latest actions by the IRS highlight the importance of accurate and compliant ERC claims. Business owners should take this opportunity to review their ERC claims, ensure they meet the eligibility criteria, and consider the withdrawal option if necessary. It's crucial to stay updated on these developments and seek professional guidance to navigate these complex requirements successfully.
To view the full IRS notice click here