The Internal Revenue Service (IRS) recommends businesses act as soon as possible if they need to fix an incorrect Employee Retention Credit claim. In this way, a business can avoid repayments with interest or penalties and even an audit.
The different options you may have for resolving an incorrect ERC claim are to make use of the Voluntary Disclosure Program, amend a return, and claim a withdrawal stated by the IRS.
12 signs the IRS unveiled to spot incorrect claims for the ERC
Taxpayers and businesses should be careful when an ERC promoter says there is nothing to lose. This is not true because if you incorrectly claim the ERC, you risk repayment requirements, interest, audits, and penalties.
What is more, you may need to hire someone to sort this issue out. Another warning sign is when a business did not pay wages or it simply did not exist during the eligibility period. On other occasions, a business is claiming ERC for too much of a tax period.
Besides, you should be careful because qualifying for ERC based on a supply chain disruption is very rare. But the IRS list of warnings continues. For example, when there are too many employees and there are wrong calculations.
More IRS warning signs for incorrect claims for ERC
In some cases, businesses use government orders that do not qualify. They do so because ERC promoters have told them they are eligible if there is any government order in place in the area, even if they were not affected. On other occasions, the IRS says there are too many quarters being claimed. Qualifying for all quarters is uncommon. Other warnings are:
- Essential business during the pandemic that could fully operate and did not have a decline in gross receipts.
- A business is reporting wages for family members as qualified wages
- A business unable to support how a Government order partially or fully suspended business operations.
- A business utilizing wages that have already been used for Paycheck Protection Program loan forgiveness.
- “Large employers claiming wages for employees who provided services”.
