Don't be Afraid of Legitimate ERC Claims
By: Ernie Neve
The IRS is on a tear against improper employee retention credit (ERC) claims. Here are four recent actions taken by the IRS:
1. Unfair Stop to Processing New ERC Claims
On September 15, 2023, the IRS announced a temporary halt on processing new ERC claims until after the end of this year at the very least.
Why the stop? The IRS pinpointed a surge in improper ERC claims as the core issue. While numerous tax experts and associations commend the IRS for halting its ERC claim processing, we disagree with this approach.
We firmly believe that all valid claims should be addressed immediately, especially to assist businesses that have faced, and continue to face, financial hardships.
Although the IRS might not address your claim until after 2023 concludes, it’s crucial to submit it now and secure your place in the front of the line.
2. Slowdown in Processing of Existing Claims
The IRS has more than 600,000 ERC claims in its processing queue.
Instead of its standard processing goal of 90 days for the claims in process, the new goal is 180 days—and much longer if the claim needs further review or audit.
Two points here:
If your ERC claim is legitimate, be patient. Also, make sure you have the documents to back up your claim. Frankly, you should have had the documentation before you filed for the ERC.
If your ERC is not legitimate, review the possibilities in IR-2023-169 and discuss them with your tax professional.
3. New IRS Q&A Document
Before we get to the new Q&A document, let’s examine its headline—we bolded what we think are problems with the headline: “Client not convinced they’re ineligible for Employee Retention Credit? New IRS Q&A document may help.”
Really? How negative can you get? Here’s the IRS giving us a tool to convince you that you don’t qualify for the ERC.
This is all wrong. The IRS should provide clear guidance on qualification and non-qualification. After all, the IRS’s mission in life is to help you pay the proper tax, no more, no less. It’s not to intimidate you and your tax professional.
IRS Tells You to Watch Out for Red Flags
The ERC is a legitimate tax credit. But the IRS notes that the credit has been increasingly the target of aggressive marketing to businesses that may not qualify for the credit.
In a September 14, 2023, news release, the IRS warns businesses to beware of nefarious actors who improperly assist businesses in claiming credits for which they don’t qualify.
But the IRS is correct in that you need to beware. Say your promoter helps you file for a $1 million credit, and you pay the promoter 25 percent ($250,000). Say next, the IRS disallows your claim. You could be out the $250,000 fee you paid the promoter.
Rule of thumb. Make sure your claim is valid.
IRS Hiring 3,700 New Employees, Primarily for Audits
In this hiring effort, and somewhat under the radar, is the fact that the IRS wants this new audit workforce to examine high-income earners, partnerships, large corporations, and promoters.
On the promoter front, the IRS wants to examine promoters aggressively peddling abusive schemes.
If you want to discuss the ERC, please call me on my direct line at 610-278-8400.