The Employee Retention Credit (ERC) played a vital role supporting businesses during the COVID-19 pandemic. Below, we have laid out the important ERC updates, risks, and deadlines you need to be aware of moving forward.
Important Updates:
ERC Moratorium: The IRS initiated the moratorium on processing new claims in September 2023. This moratorium is still in place and the IRS has not yet announced a date they plan to lift it. Once the moratorium ends, claims filed on or after September 2023 will begin to be processed by the IRS.
Pre-moratorium Claims: Claims received prior to September 2023 are still being processed but at a slower rate due to stricter compliance reviews. Claims take, at a minimum, 180 days to process. The IRS currently processes about 1,000-2,000 claims per week.
Voluntary Claim Withdrawal: The IRS offers a Voluntary Disclosure Program (VDP) until March 22, 2024. This program allows organizations to withdraw an erroneously claimed ERC and repay only 80 percent of the credit received. Additional advantages to this program include no requirement to pay interest received related to the ERC and penalties and interest will not be charged for erroneous ERC claims. In addition, the IRS will not examine the ERC on the organization’s employment tax return. Organizations are required to cooperate with the IRS’ requests for additional information, such as names, addresses, and phone numbers of ERC promoters, as well as details of services provided.
You can apply for the VDP by completing IRS Form 15434 – Application for Employee Retention Credit Voluntary Disclosure Program until March 22, 2024. You must not be under current examination or criminal investigation by the IRS to qualify.
Risks of Incorrectly Claiming the ERC:
Claiming the ERC for ineligible wages can lead to significant consequences, including:
- Repayment of the credit with interest and penalties.
- Potential IRS audit
- Potential legal defense expenses to help resolve an incorrect claim, amend previous returns, or represent in an audit.
- Reputational damage.
7 Warning Signs of Questionable ERC Claims:
The IRS has identified these seven signs that might indicate an error in your ERC claim. A summary of these red flags is as follows:
- Claiming for Too Many Quarters: It is uncommon to qualify for all quarters the credit was available. Review your eligibility for each quarter.
- Government Orders Don’t Qualify: Not all government restrictions qualify. Focus on orders that directly impacted your business operations. Your operations must have sustained a full or partial suspension of more than a nominal amount as a direct result of the government orders.
- High Employee Count & Calculation Errors: Double-check your employee count and ensure calculations are accurate.
- Supply Chain Issues Alone Don’t Qualify: Supply chain issues, without a qualifying government order, are not sufficient for ERC.
- Claiming for Too Much of a Tax Period: Review the specific wage period eligibility for each quarter claimed.
- No Wages Paid or Business Didn’t Exist: The ERC applies only to businesses that paid wages during the claimed period.
- Promoter Says “Nothing to Lose”: Beware promoters who downplay the risk of incorrect claims. Consulting a tax professional is crucial.
Important Resources:
- IRS ERC Webpage: https://www.irs.gov/coronavirus/employee-retention-credit
- IRS Voluntary Disclosure Program: https://www.irs.gov/coronavirus/employee-retention-credit-voluntary-disclosure-program
Disclaimer:
The information provided in this newsletter is general and should not be considered tax advice. Please consult with your tax professional for specific guidance on your situation.
Conclusion:
We understand navigating the ERC program can be complex. We encourage you to reach out if you have any questions or require assistance.
– Shaun Johnson, CPA
Owner
