The IRS continues compliance work around the Employee Retention Tax Credit (ERTC) given the complexity and to reduce the risk of improper claims. Here is a summary of the new announcements to help you stay informed and address potential issues that could affect your business.
Risk Level of ERTC Claims
On June 20, 2024, the IRS announced plans to deny tens of thousands of ERTC claims due to indications of errors and deviations from Congress's guidelines. The IRS estimates that 10 to 20 percent of the claims in the high-risk category showed clear signs of being erroneous and will get denied. An additional 60 to 70 percent of claims fall into the unacceptable level of risk category, and the IRS will perform further analysis to expedite the resolution of valid claims while preventing improper payments. The remaining 10 to 20 percent of claims are considered low-risk, and the IRS expects to begin processing payments in the fall later this summer.
Processing Claims
When the IRS announced its claims processing moratorium last September, it indicated claims submitted after that date would be on hold until further notice. However, on August 8, 2024, the IRS announced it would begin processing claims filed between September 14, 2023, and January 31, 2024. The focus will be on the highest and lowest risk claims, prioritizing those with a clear basis for either approval or denial. There have yet to be announcements for review of claims filed after January 31, 2024, as a bill passed in the House of Representatives in January that would have potentially ended the ERC program on January 31, 2024 but failed to pass the Senate.
The IRS has advised businesses with pending claims not to call for status updates, as additional information is generally unavailable. For those who may have submitted incorrect claims that are still pending or approved but not yet cashed or deposited, the IRS suggests using its withdrawal process to avoid interest and penalties.
Warning Signs of Incorrect ETRC Claims
On July 26, 2024, the IRS identified five new warning signs of incorrect ETRC claims, adding to the seven previously announced. The warning signs are:
Essential businesses that remained operational and did not experience a decline in gross receipts during the pandemic.
Organizations that could not demonstrate how a government order fully or partially suspended operations.
Companies that reported family wages as qualifying wages.
Wages claimed and used for Paycheck Protection Program loan forgiveness.
Large employers claimed wages for employees who were actively providing services.
The seven previously announced warning signs are:
Excessive quarters claimed.
Government orders that do not qualify.
Incorrect employee counts and calculations.
Claims based on supply chain issues.
Excessive ERTC claims for a single tax period.
Businesses that did not pay wages or did not exist during the eligibility period.
Promoters claiming zero risk were involved.
The IRS reiterated the options for businesses that suspect their ERTC claims may be problematic. These options include withdrawing the questionable claims or amending returns to correct overstated amounts.
ERC Voluntary Disclosure Program
In both announcements, the IRS indicated that it might reopen its ERC Voluntary Disclosure Program, which closed in March 2024. The latest update suggests the IRS is in the final stages of reopening the program for a limited time, with additional details expected soon. Under the previous program, applicants had to return only 80 percent of their ERC refunds, with no interest, among other terms. The reopened program is likely to feature less favorable terms.
Appealing Claims
Lastly, some ERTC claimants have recently received IRS notices denying their claims. These claimants can appeal the denials to the IRS Independent Office of Appeals and may also file a lawsuit to seek refunds. To appeal, they must do so within 30 days of receiving the denial notice, while a refund lawsuit must be filed within two years of the notice.
Here to Help
We build value-added relationships with each client to understand their business structure to provide solid solutions, and our approach offers direct access to the firm's decision-makers. Our innovative cross-functional services help businesses address the challenges ahead. Please contact us to discuss withdrawing an ETRC claim, to find out whether voluntary disclosure involving your paid ERTC claims is an option, or to learn more about appealing or suing on your denied ERTC claim.
Kommentare