The Internal Revenue Service (IRS) has informed taxpayers of a crucial update concerning the processing of Employee Retention Credits (ERC). The Agency is urging taxpayers to meticulously review their claims for any “warning signs” of information that is not correct.
These caution alerts could flag claims as fraudulent, and the IRS is offering an opportunity to correct or cancel such claims before implementing further “compliance efforts” in the next few days.
IRS unveils the number of medium/high-risk ERC claims
Last July, the IRS announced the end of its moratorium. Besides, it resumed processing low-risk ERC claims. Although many in the tax community were frustrated that the IRS didn’t simply process those low-risk claims earlier, the resumption was still a positive sign. Nevertheless, it’s concerning for most taxpayers that 85% of the claims held by the IRS are classified as medium or high-risk and will be subject to further scrutiny.
It was last week when the IRS provided more details on what it considers signs of“incorrect” claims. The IRS is asking taxpayers to thoroughly review their claims—whether processed or unprocessed—to ensure they do not exhibit these warning signs.
- Ensure all information provided is accurate and complete.
- Double-check the eligibility criteria for the ERC.
- Verify that the claim calculations are correct.
- Be aware of common fraud indicators that the IRS might use to flag claims.
By taking these steps, taxpayers can avoid potential issues and ensure their claims are processed smoothly. The IRS is set to announce further compliance efforts in the next few days, emphasizing the importance of accurate and honest submissions. Taxpayers are encouraged to take this opportunity to review and correct their claims to avoid any potential complications.
Stay informed and proactive to ensure your ERC claims meet all requirements and avoid the risk of being flagged as fraudulent.
Last week, the IRS unveiled five new warning signs to be on the lookout for, adding to the seven previously identified. This alert targets both businesses and individuals with pending claims, urging them to meticulously review their paid and unprocessed claims for these warning indicators to ensure accuracy. If you notice any of these warning signs or have questions about your claims, it’s crucial to consult with a trusted tax professional.
Understanding the IRS Warning Signs
The IRS has released this new set of warning signs to help taxpayers identify potential issues with their claims. Here’s what you need to know:
- Review Pending Claims: Ensure all your paid and unprocessed claims are double-checked for accuracy.
- Consult a Professional: If you find any discrepancies or have questions, speak with a trusted tax advisor.
The ERC Withdrawal Program
Once again, the IRS is promoting the ERC Withdrawal Program as a solution for taxpayers who now realize their claims may not meet the program’s requirements. Addressing incorrect claims sooner rather than later can help you avoid audits, repayments, penalties, and interest. It’s important to note that the IRS isn’t outright accusing these claims of being fraudulent. Instead, they are focusing their criticism on various so-called ERC promoters.
Beware of ERC Promoters
The IRS has intensified its scrutiny of so-called ERC promoters, who they believe are responsible for the surge in high-risk claims. These promoters are often accused of misleading taxpayers into filing ineligible claims. IRS communications frequently target these promoters, highlighting the risks of falling prey to their schemes.
In conclusion, staying vigilant and informed is key. Make sure to review your claims thoroughly and consult with a tax professional if you have any doubts. By taking proactive steps now, you can safeguard yourself against potential issues down the line.
“The IRS continues working aggressively to pursue improper claims as well as increase payments going out to businesses with legitimate claims on these complex credits,” said IRS Commissioner Danny Werfel.
“As we prepare for the next major announcement, we want businesses to be aware of common errors our compliance teams are seeing, many of which reflect bad advice coming from promoters.
The IRS continues to urge people with pending claims or previously approved payments to talk to a trusted tax professional rather than a promoter and see if any of these red flags apply to them.”
The Five New Warning Signs
The IRS has added five new warning signs to their list, which are commonly found on incorrect claims:
- Essential businesses during the pandemic that could fully operate and didn’t have a decline in gross receipts.
- Business unable to support how a government order fully or partially suspended business operations.
- Business reporting family members’ wages as qualified wages.
- Business using wages already used for Paycheck Protection Program loan forgiveness.
- Large employers claiming wages for employees who provided services.
The Seven Previous Warning Signs
The Employee Retention Credit (ERC) has been a lifeline for many businesses, but it can also be a source of confusion and error. From miscalculated quarters to ineligible government orders, the potential for mistakes is high. Let’s dive into the common pitfalls businesses face and explore the solutions the IRS offers to correct these errors.
Common ERC Claim Mistakes
Many businesses have fallen into the trap of claiming ERCs incorrectly. Here are some of the most frequent mistakes:
- Too many quarters being claimed: Businesses often claim more quarters than they are eligible for.
- Government orders that don’t qualify: Some companies cite government orders that do not meet the ERC eligibility criteria.
- Too many employees and wrong calculations: Incorrect employee counts and miscalculations can lead to erroneous claims.
- Business citing supply chain issues: While supply chain disruptions are significant, not all qualify for the ERC.
- Business claiming ERC for too much of a tax period: Over-claiming for extended periods is a common error.
- Business didn’t pay wages or didn’t exist during eligibility period: Claims are made for periods when the business was not operational or did not pay wages.
- So-called promoter says there’s nothing to lose: Misleading advice from unqualified promoters can lead to trouble.
What Should Taxpayers Do?
The IRS has already halted more than $2 billion in false ERC claims since last fall, with hundreds of thousands more still under review. It’s crucial for businesses to ensure their claims are accurate and valid. Here’s how to stay on the right side of the law:
Correcting Incorrect ERC Claims
Taxpayers have several options to rectify incorrect ERC claims:
- ERC Withdrawal Program: This program allows taxpayers to withdraw their claims as if they were never filed, no questions asked.
- Amend a Return: If you’ve received funds you shouldn’t have, you can amend your return to correct the payment amount.
- Voluntary Disclosure Program: The IRS will soon reopen this program for a limited time, allowing taxpayers to correct incorrect claims voluntarily. Stay tuned for more details as they become available.
By taking these steps, businesses can ensure they are compliant and avoid the pitfalls of incorrect ERC claims. The time to act is now – make sure your claims are accurate and legitimate.