Mary Wood of Meadows Collier discusses recent updates on the employee retention credit, from the IRS’s moratorium on new claims to the potential effect of pending legislation. The IRS issued a moratorium on claims, and the House passed the Tax Relief for American Families and Workers Act, both of which are impacting the ERC. Wood explains the concerns about improper claims and fraud related to the credit, with a significant increase in claims paid out by the government. This led to the rise of companies offering aggressive solicitations to taxpayers, resulting in a backlog of claims and the IRS struggling to process them.
The moratorium on processing new claims has left many employers in a difficult position, with no action being taken on claims filed during the moratorium. Some businesses are now filing suits in federal district court to push for movement on their claims. Wood’s firm and others have filed suits to address the issue. The IRS also offered a special voluntary disclosure program for the employee retention credit, allowing taxpayers to correct their claims and return a portion of the refund with no penalties and interest. However, participating in this program did not exempt taxpayers from potential criminal investigation or prosecution.
Wood discusses how the regular voluntary disclosure program may make more sense for taxpayers facing criminal exposure due to willful misrepresentation on their tax returns. She also suggests that reopening the ERC voluntary disclosure program could be beneficial for the IRS in pursuing civil and criminal investigations of promoters involved in fraudulent claims. The Tax Relief for American Families and Workers Act of 2024, if passed, would sunset the ERC early and impose stricter penalties on promoters. This legislation has caused uncertainty and may have had a chilling effect on claims, but businesses with legitimate claims are still encouraged to file.
Moving forward, Wood expects the IRS to continue aggressively pursuing examinations, civil promoter investigations, and potential criminal investigations in cases of fraudulent claims. The agency is focused on identifying and penalizing promoters and taxpayers who willfully filed fraudulent claims. For businesses with valid claims, Wood advises checking eligibility requirements, considering withdrawal options if needed, and ensuring all documentation is in order to support their claims. Ultimately, businesses may need to take legal action if the IRS does not address their claims in a timely manner. It is essential for taxpayers to be proactive and prepared in dealing with the challenges surrounding the employee retention credit.
