IRS Ups the Ante on ERC Claims

The Internal Revenue Service (IRS) has initially disallowed more than 20,000 Employee Retention Credit (ERC) claims as part of its heightened scrutiny of entities claiming this Covid-era tax benefit. In this initial round of disallowance letters, the IRS notified ERC claimants that they will not receive the ERC because the business entity did not exist or did not pay employees during the claim period.

The ERC is a refundable payroll tax credit that was designed to help small to medium-sized business owners pay their employees during the COVID-19 economic downturn. The ERC solely applies to qualified wages paid from March 13, 2020, to December 31, 2021. Entities formed after this period are not eligible for the ERC.

These initial 20,000 disallowance letters are merely the beginning of the IRS’s ongoing review of ERC claims. The heightened scrutiny is partly in response to numerous misleading marketing campaigns from ERC promoters/mills targeting small businesses alleging eligibility for the ERC. The IRS is performing audits of the ERC claims and criminal investigations of ERC mills and businesses that have filed dubious claims.

Moratorium on New Claims Processing

In September 2023, the IRS ordered a moratorium, through at least the end of the year, on the processing of new ERC claims because of a “flood of improper” claims. The agency announced that it will focus on compliance reviews of existing claims in its efforts to combat fraud and to protect taxpayers from penalties or interest payments that result from bad ERC claims pushed by promoters.

ERC Claim Withdrawal Process

An ERC claim withdrawal option has been provided by the IRS to help taxpayers who have yet to receive their ERC but are concerned about the accuracy of their claims. The agency created this withdrawal option for taxpayers who were pressured or misled by ERC mills. Withdrawn claims are treated as if never filed, and the IRS will not impose penalties or interest. Withdrawing a fraudulent claim, however, will not exempt ERC claimants from potential criminal investigation and prosecution.

Voluntary Disclosure Program

The IRS also announced that it is opening a voluntary disclosure program later in December for ERC claimants that received payments for dubious ERC claims. The anticipated program will establish procedures for those who received a questionable ERC to return the funds and avoid future IRS enforcement actions.

For more information or assistance with ERC claims, contact us.

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