Employee Retention Credits (ERC) Forgiveness & Audits

The IRS and Congress are looking to crack down on fraudulent ERC claims. You may have been a victim of misleading advertising from ERC mills, saying you qualified for such spurious reasons as supply chain disruption or non-binding health guidance. We expect many audits over the next 3-6 years, and there could be dire consequences, including penalties and interest for those who submitted fraudulent claims.

However, the IRS has also implemented a generous voluntary disclosure program.

Voluntary Disclosure Program 

The IRS has announced a new program for taxpayers to resolve questionable ERC claims so that they only have to return 80% of the funds received, and they get to keep the interest they collected. This program runs through March 22, 2024.

The IRS won’t charge interest or penalties on the credits taxpayers repay under this program. However, installment agreements might attract penalties and interest.

This is a great opportunity for business owners who were tricked by the ERC mills to come clean while still keeping a portion of the ERC. However, you must disclose to the IRS anyone who assisted you in claiming the ERC.

Ineligibility Criteria

Certain conditions can make employers ineligible for the program. These include being under criminal investigation related to the ERC, being notified of an impending criminal investigation, being under an employment tax examination for the periods concerned, or having received a notice and demand for repayment of all or part of the claimed ERC.

Processing Moratorium and Enforcement Actions

The IRS has also intensified its efforts to combat dubious ERC claims. More than 20,000 disallowance letters have been mailed out, and a moratorium on processing new ERC claims is in place. This is part of a broader initiative to stop aggressive marketing and misleading claims related to the ERC. Congress is considering expanding the window for ERC audits from three to six years in expectation of a large number of audits related to false claims. 

Proposed Legislation Changes

Additionally, proposed legislation could end the ERC on January 31, 2024. The House Ways and Means Committee introduced The Tax Relief for American Families and Workers Act of 2024, which advances the deadline for ERC claim submissions significantly. This change would apply to all ERC claim submissions, including those for 2021 calendar quarters. Meaning, if you’re reading this, it might be too late!

These updates represent a significant shift in how the IRS handles ERC claims, focusing on rectifying erroneous claims and tightening the overall process. The voluntary disclosure program, in particular, offers a pathway for employers to correct their claims with reduced financial repercussions, but it’s crucial for interested parties to understand the eligibility criteria and deadlines involved.

Navigating ERC Audits

If you’re facing an audit for your Employee Retention Credit (ERC) claim, or you are unsure whether your original claim was done correctly, it’s essential to have the right representation. We recommend enlisting a trusted Enrolled Agent (EA), Certified Public Accountant (CPA), or Tax Lawyer, ideally different from the firm that prepared your original claim. This ensures an objective approach to your defense and a fresh set of eyes.

At Olympia Tax Service, we do ERC the right way! We are ready to represent you before the IRS. Our team is experienced in ERC regulations and IRS procedures, providing you with tailored, expert guidance through the audit process.

For advice or support with an ERC audit, don’t hesitate to reach out.

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