The Employee Retention Credit (ERC) was a lifeline for many businesses during the COVID-19 pandemic. Introduced in 2020, it provided financial relief to companies that kept employees on payroll despite facing revenue decline or government-ordered closures. However, recent developments highlight the importance of understanding the current IRS stance on ERC claims and how to ensure compliance.
A Surge in Improper Claims and the IRS Response
The IRS has identified a significant number of potentially erroneous ERC claims. A recent review revealed that a large portion of submitted claims show a high risk of being ineligible. This has prompted the IRS to take decisive action to safeguard taxpayers and prevent improper payouts.
The IRS’s Three-Tiered Approach to ERC Claims
The IRS has categorized ERC claims into three risk levels:
- High-Risk Claims (10-20%) – These claims exhibit clear signs of ineligibility and will be denied in the coming weeks. Examples include claims with illogical revenue decline figures or those filed by businesses that don’t meet the eligibility criteria.
- Medium-Risk Claims (60-70%) – These claims require further scrutiny due to potential eligibility concerns. The IRS will conduct additional analysis to determine their validity. Businesses in this category may experience processing delays.
- Low-Risk Claims (10-20%) – These claims show no red flags and will be prioritized for processing. Businesses with low-risk claims can expect a faster turnaround, potentially receiving their refunds within the coming months.
The Moratorium on New Claims and Limited Phone Support
It’s important to note that the IRS is not currently processing any claims submitted after September 14, 2023, due to the moratorium. Additionally, calling the IRS for claim status updates is not recommended as phone representatives may not have access to this information.
The ERC Withdrawal Program: A Safety Net for Businesses
The IRS offers a special ERC Withdrawal Program for businesses that may have filed inaccurate claims. This program allows voluntary withdrawal, preventing future compliance issues and potential penalties. Here are some scenarios where withdrawal might be beneficial:
- Unprocessed Claims: If your claim hasn’t been processed yet, you can request the IRS to stop processing it through the withdrawal program.
- Uncashed Refund Checks: Even with a received check, withdrawal is possible. The IRS will treat it as if never filed, with no penalties.
- Concerns About Claim Validity: If you’re unsure about your claim’s eligibility, consider withdrawal to avoid potential audits.
Steps to Withdraw an ERC Claim
Withdrawing an ERC claim involves following specific IRS guidelines outlined on IRS.gov/withdrawmyERC. Here’s a simplified breakdown:
- Consult Your Payroll Company: If they filed your claim, consult them for withdrawal assistance.
- Submit a Withdrawal Request: If you filed directly and haven’t received a check, you can fax your request using a designated IRS fax line.
- Mail the Withdrawal Request: This option is available if faxing is not possible, but expect a longer processing time.
- Respond to Audit Notices: If notified of an audit, you can submit the withdrawal request to the assigned examiner.
- Return Uncashed Refund Checks: Mail the voided check with your withdrawal request as per IRS instructions.
Seeking Professional Guidance is Key
The complexity of the ERC program and aggressive marketing tactics employed by some promoters have resulted in a high number of improper claims. Businesses are strongly advised to exercise caution and seek professional guidance when dealing with ERC claims. Proactive measures like withdrawing questionable claims and ensuring compliance with IRS regulations can help businesses avoid potential audits, penalties, and other enforcement actions.
We’re Here to Help!
If you have any questions or need assistance with your ERC claim, please don’t hesitate to contact our office. Our team is equipped to guide you through this intricate process and ensure your business remains compliant with IRS requirements.
