IRS: Use trusted advisors for Employee Retention Tax Credits

December 20, 2023

Months after a moratorium was instituted on filing for Employee Retention Tax Credits, the IRS still is warning business owners about being targeted by unscrupulous marketers. 

“We continue to urge taxpayers to consult with a trusted tax professional rather than a marketing company about this complex tax credit,” said Roy Chaney, an IRS senior stakeholder liaison, during a video update last month on the tax credit program.

The federal agency in early December then issued more than 20,000 disallowance letters related to ERC claims.

That’s where Honkamp can help. We urge any of our clients or prospective clients to contact us before proceeding with a company that claims you are eligible for this credit. 

Filing a false ERC claim could result in a company having to repay the refund, as well as interest and fines. That business owner also could face other civil or criminal penalties. 

The IRS reports that tens of thousands of questionable claims are being scrutinized and/or audited currently, and hundreds of criminal cases have been launched.

Here’s what you need to know about the state of the ERC program and the IRS’s actions:

  • The ERC is a refundable tax credit for businesses. It is designated for companies that continued paying employees during the COVID-19 pandemic only if the business’s operations were fully or partially suspended due to a government order, or if the business had a significant decline in gross receipts during the eligibility period. 
  • The IRS reported in September that it had received 3.6 million claims for the credit since the program launched.
  • However, 600,000 of those were received in the 90 days before the IRS announced in mid-September that it was issuing a moratorium on processing new claims. The IRS reported that this “flood of ineligible ERC claims” came as business owners were being pressured or misled by unscrupulous marketers into filing claims. 
  • With that influx of false claims, the IRS announced a moratorium until “at least” the end of 2023 on processing new claims, as it ramped up its scrutiny on the recently filed claims. The agency also reported that its goal of processing filed claims within 90 days was being extended to 180 days – and much longer if the claim needs further review or audit. 
  • In October, the IRS announced a withdrawal process through which businesses could withdraw ERC claims they believe are not accurate. If refunds have not been issued on those claims yet, they can be withdrawn without the IRS assessing penalties or interest. 
  • In November, the IRS announced that OSHA communications issued during the pandemic generally are “insufficient” alone to make businesses eligible for the ERC. If those communications are the only basis on which a business filed or is filing for ERC, the owners might want to reconsider and should work with a trusted tax advisor to assess eligibility. 
  • Later in November, IRS officials provided another update on the program, noting that some marketers continue to mislead business owners. Agency officials again urged business owners to work with trusted tax advisors to determine if they are eligible for the credit.  
  • In early December, the IRS announced that it was issuing more than 20,000 disallowance letters for ERC claims. The agency reported that the letters related to entities that did not exist or did not have paid employees during the period of eligibility. 
  • The agency also announced that it soon would unveil a voluntary disclosure program “allowing those who received questionable payments to come in and avoid future IRS action.”

Given the complex nature of this tax credit and the scrutiny of the program, please contact your Honkamp advisor with questions about your business’s eligibility.  

 

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