IRS audits of companies claiming the Employee Retention Credit (ERC) are in full swing. The IRS looks at companies that may be falsely claiming it, as well as companies promoting aid to them that the IRS believes are breaking the rules. Congress provided massive pandemic tax relief in various forms. One of the most popular and enduring that still draws fire is the ERC.
The ERC is a refundable tax credit designed for businesses that continued to pay employees while closed due to the COVID-19 pandemic or experienced significant declines in gross revenue between March 13, 2020 and December 31, 2021. Eligible taxpayers may claim from the ERC on an original or amended income tax return for any period within those dates. To be eligible, employers must have:
The IRS is well aware of radio, TV and Internet advertisements with tempting claims of free money, $26,000 per employee, with no money. The IRS has been warning about this regulation since last fall, but the credit claims keep pouring in. The IRS says some tax professionals are being pressured to falsely claim credits. People and companies are not allowed to make false claims. The IRS says to be careful of advertised schemes and direct requests that promise tax savings that are too good to be true.
Taxpayers are always responsible for the information that appears on their tax returns. Falsely claiming the ERC could result in taxpayers having to repay the credit, along with penalties and interest. The IRS continues to see third-party aggressive advertising Retention credit for employees (ERC) arrangements. In News item IR-2023-105, the IRS renewed a warning for businesses and tax-exempt groups to watch for warning signs of aggressive marketing for preserving employee credit. The IRS says some promoters may lie about eligibility requirements.
ERC is important pandemic-era credit and valuable if properly claimed, but can result in repayment and significant penalties and interest if it is found to have been claimed in error. The IRS has trained auditors who investigate ERC claims that pose the greatest risk. In addition, the IRS announced that the IRS Criminal Investigation Division is working to identify fraud and promoters of fraudulent claims. Illegal claims delay credit processing for everyone.
The IRS also reminds businesses, tax-exempt groups, and others of simple steps they can take to protect themselves from making an inappropriate ERC.
Finally, the IRS is calling on people to report ERC fraud where they see it. Employers can report illegal tax-related ERC claims and activities by submitting a completed form Form 14242, Report Suspected Abuse of Tax Offers or Preparationsand all supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations.