In a proactive stance against questionable Employee Retention Credit (ERC) claims, the Internal Revenue Service (IRS) has recently taken decisive action. Over 20,000 letters have been dispatched to taxpayers, notifying them that their claims are being disallowed. This measure is particularly targeted at businesses that either did not exist or lacked paid employees during the eligibility period, spanning from March 13, 2020, to December 31, 2021, the window for claiming the ERC.
ERC Claim Challenges and IRS Response
The IRS’s latest move is a continuation of its efforts to curb erroneous claims and maintain the integrity of the ERC program. This article delves into the details of these disallowance letters and the implications for businesses involved.
Identifying Ineligible Claims
The disallowance letters serve as a pre-emptive measure, catching ineligible claims before they are approved and paid. This is a strategic move by the IRS, aimed at achieving two primary objectives:
Avoiding Audits, Repayment, Penalties, and Interest for Ineligible Taxpayers
The IRS’s intervention at this stage helps ineligible taxpayers sidestep potential audits, repayment demands, and associated penalties and interest. By identifying and disallowing claims early, the IRS aims to save both time and resources for both parties involved.
Preventing Incorrect Refunds to ERC Promoters
An additional layer of protection is provided to taxpayers by preventing the disbursement of an incorrect refund to ERC promoters. This safeguards taxpayers from falling victim to unscrupulous practices in the name of ERC claims.
Enforcement Activities and Future Plans
The recent wave of disallowance letters is just one facet of the IRS’s broader enforcement strategy concerning ERC claims. The agency has hinted at further letters in the pipeline, underscoring its commitment to maintaining the credibility of the ERC program.
The IRS’s cautionary stance is motivated by ongoing aggressive marketing tactics and fraudulent activities related to ERC claims. Businesses are advised to exercise extreme caution when navigating the ERC landscape due to the persisting threat of deceptive maneuvers by marketers and scammers.
Withdrawal Procedure for Ineligible Claims
Building on our earlier advisory on September 29th, where we urged business owners to exercise caution in response to aggressive marketing, we provided a comprehensive withdrawal procedure in our November 9th article. This procedure is designed for those who inadvertently made ineligible claims, offering a pathway to retract these claims and mitigate potential future issues with the IRS.
Legal Ramifications for Fraudulent Claims
While the majority of businesses are encouraged to rectify their claims promptly, the IRS issues a stark warning to those who knowingly filed fraudulent ERC claims. Individuals who willingly engaged in fraudulent activities or assisted in such conduct may find themselves subject to criminal investigation and prosecution. This underscores the gravity of submitting accurate and truthful information when claiming the ERC.
As the IRS intensifies its efforts to scrutinize ERC claims, businesses must navigate the landscape with care. The recent issuance of disallowance letters signifies a proactive approach to prevent erroneous claims, protect taxpayers, and maintain the credibility of the ERC program. With ongoing enforcement activities and a commitment to future actions, the IRS sends a clear message that compliance and accuracy are non-negotiable.
For further questions or assistance regarding ERC claims, businesses are encouraged to reach out to our office. Stay informed, exercise caution, and ensure compliance to navigate the ERC landscape successfully.