Employers Must Re-examine Employee Retention Credit (ERC) Claims

The Employee Retention Credit (ERC) offered financial relief to businesses struggling due to COVID-19. However, many ineligible applicants filed claims, or requested excessive amounts, often misled by aggressive marketing tactics.

IRS Crackdown

The IRS is now aggressively focusing on these dubious claims:

• Increased audits of ERC filings.
• New claim processing paused.
• Criminal investigations launched against promoters and businesses associated with improper claims.

Options for Employers with Incorrect Claims

• ERC Voluntary Disclosure Program (Deadline was March 22, 2024; may be extended): Repay 80% of the incorrect ERC, with reduced penalties and interest. This offers some protection from future audits.
• ERC Withdrawal Program (Ongoing): If your ERC refund hasn’t been paid yet, and you believe you’re ineligible, you can withdraw claims to avoid penalties. This option is available even after March 22nd.

Act Now

The IRS urges employers to reassess their ERC claims. The most beneficial option is to take advantage of the Voluntary Disclosure Program if it is available.

Warning Signs from the IRS

The IRS highlights common errors to watch for:

• Claiming too many quarters: Most businesses don’t qualify for every available quarter.
• Unqualified government orders: Orders must have significantly impacted operations, not merely been recommendations.
• Incorrect employee counts/calculations: Rules changed over time, and large employers face extra restrictions.
• Supply chain issues alone don’t qualify.
• Claiming ERC for periods without wages paid or when the business didn’t exist.
• Promoters claiming “no risk”: This is false.  Incorrect claims bring penalties and potential audits.

Get Help

If you find errors in your ERC claims, consult a tax professional immediately to discuss the Voluntary Disclosure or Withdrawal programs.

Patel Law Offices offers a strategy session to discuss how to resolve your legal problem. Conveniently schedule online today with our online scheduler and questionnaire.