As the Internal Revenue Service intensifies work on the Employee Retention Credit, the agency today shared five new warning signs being seen on incorrect claims by businesses.
The new list comes from common issues the IRS compliance teams have seen while analyzing and processing ERC claims. The new items are in addition to seven problem areas the IRS previously highlighted.
The IRS urged businesses with pending claims to carefully review their filings to confirm their eligibility and ensure credits claimed don’t include any of these 12 warning signs or other mistakes. Businesses with these indicators should talk to a trusted tax professional like Morris and Associates and consider using special ERC Withdrawal Program that remains available. Businesses considering applying for the complex credit also should follow the same steps before submitting a claim.
Businesses with previously approved claims should also review the filings as the IRS intensifies compliance efforts in this area. Businesses should act soon to resolve incorrect claims and avoid future issues such as audits, repayment, penalties and interest.
The IRS issued today’s five new warning signs to give businesses and tax professionals additional time to prepare for an upcoming announcement involving new steps being taken to counter improper ERC claims. In coming days, the IRS plans to issue more information on new compliance work involving high-risk ERC claims as well as details about an anticipated short-term reopening of the Voluntary Disclosure Program and an important update about impending processing of low-risk payments to help small business with legitimate claims. This follows up on last month’s announcement that the IRS was denying more of the highest-risk ERC claims.
“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.”
Aggressive promoters lured many businesses to mistakenly claim this pandemic-era credit when they’re not eligible. To protect against improper claims, the IRS announced in June that it digitized and analyzed about 1 million ERC claims representing more than $86 billion. To protect taxpayers from getting an improper refund they’d have to repay, the agency will deny tens of thousands of ERC claims that show clear signs of being erroneous.
The agency is also scrutinizing hundreds of thousands more claims that show risk of being incorrect as well as beginning additional processing of low-risk claims to those with eligible claims.
As the IRS begins to process additional lower-risk claims, the agency reminds businesses that they may receive payments for some valid tax periods – generally quarters – while the IRS reviews other periods for eligibility. The IRS emphasizes ERC eligibility can vary from one tax period to another if, for example, government orders were no longer in place or a business’s gross receipts increased. Alternately, qualified wages may vary due to a forgiven PPP loan or because an employer already claimed the maximum amount of qualified wages in an earlier tax period.
Work on ERC compliance efforts around erroneous claims has now topped more than $2 billion since last fall as the agency continues intensifying activity in this area.
The IRS urges taxpayers to work with a trusted tax professional like Morris and Associates who understands the complex ERC rules. Tax professionals can help businesses recheck their claims and discuss next steps; this is especially important for those who used a promoter to file claims instead of a tax professional.
