The IRS is cracking down on erroneous or false claims related to the Employee Retention Credit (ERC) and has introduced a supplemental claim process to help third-party payers and their clients resolve incorrect claims. Third-party payers, such as payroll companies, filed ERC claims for multiple employers under their Employer Identification Number (EIN), making it difficult to correct claims for some clients while allowing others to continue. The new supplemental claim process allows third-party payers to withdraw claims for some clients while maintaining claims for qualifying clients, with a deadline of November 22, 2024.
To be eligible for the supplemental claim process, third-party payers must have filed one or more claims aggregating Employee Retention Credits using their EIN on adjusted employment tax returns. The process does not apply to common law employers who did not use a third-party payer or those who received the full amount of ERC claimed as a refund or credit against tax owed. Third-party payers who do not qualify for the supplemental claim process may have other options, including voluntary disclosure programs for repayment.
The IRS has opened a second ERC voluntary disclosure program for businesses to repay funds received in error after filing incorrect ERC claims. This program applies to tax periods in 2021 and allows taxpayers to repay 85% of the credit received if accepted. If unable to pay the required amount, taxpayers may be considered for an installment agreement on a case-by-case basis. Penalties and interest will apply if the credit is not repaid promptly or through an alternative payment arrangement.
The ERC program was designed to help eligible employers keep their businesses afloat during the pandemic by providing a refundable tax credit of up to 50% of qualified wages paid to employees. Employers must demonstrate that they were impacted by government shutdowns or experienced a decline in gross receipts to qualify for the credit. The program aims to provide financial relief to businesses struggling due to the economic impact of the pandemic.
The IRS is continuously updating its website with information on ERC claims and eligibility. Tax professionals have raised concerns about the timing of these updates. With potential penalties for incorrect claims and frustration surrounding the claims and refund process, it is crucial for taxpayers to seek guidance from a trusted tax advisor to navigate the complexities of ERC claims and determine the best course of action. The IRS FAQ page provides additional information on the supplemental claim process, ERC eligibility, voluntary disclosure programs, recordkeeping, and scams to assist taxpayers with their ERC claims.
