ERTC Claims

The IRS issued a recent announcement regarding Employee Retention Tax Credit (ERTC Claims) updates.  Previously, the IRS announced it was lifting its moratorium on processing Employee Retention Tax Credit or ERTC claims, but was going to reject about 15-20% of claims and leave most other claims in limbo.  This most recent IRS announcement does not provide good news for the thousands of businesses still waiting for the money they are rightfully entitled to under the ERC program.  The announcement indicates the IRS is attempting to persuade taxpayers with questionable claims to withdraw those questionable claims.

The IRS announced five additional “warning signs” an ERC claim is “incorrect.”   These five warning signs are:

1. Essential businesses that remained open but did not have a decline in gross receipts,
2. Businesses unable to show or support how the government fully or partially suspended their operations, 
3. Businesses reporting family members’ wages as qualifying wages,
4. Businesses using wages already used for PPP loan forgiveness, and,
5. Large employers claiming ERCs.  

Previous warning signs cited by the IRS included:

1. Promoters claiming “there is nothing to lose,”
2. Too many employees and/or incorrect wage calculations,
3. Citing government orders that did not qualify, and,
4. Citing supply chain issues.

The IRS previously announced it would only begin issuing refunds for so called “low risk” claims and reject “high risk” claims.  The IRS never explicitly stated which types of claims are “low risk,” “high risk,” or “medium risk.”  This most recent IRS announcement appears to suggest taxpayers whose claims may meet one or more of the above “warning signs” should strongly consider withdrawing their claims.   It is debatable whether the Internal Revenue Service truly has the taxpayer’s best interest at heart or just trying to reduce its workload by making this apparent suggestion. 

The IRS also announced it will reopen the ERC Voluntary Disclosure program, however, the announcement does not provide any details of the revised ERC Voluntary Disclosure program.  It is anticipated the new program’s terms will not be as favorable to taxpayers as when compared to the previous program’s terms.  Under the previous ERC program, taxpayers who participated in the Voluntary Disclose program were able to retain 20% of the ERC refund received and avoid paying any interest and penalties on the overage.  Under the revised plan, it is unclear what, if any, incentives will be available to participants.

The ERC program was intended to provide relief for thousands of businesses that struggled to get through the pandemic.  Unfortunately, it is just as difficult to run a business today as it was before.  Businesses continue to face challenges such inflation, while at the same time the IRS is denying them their entitled benefits and it is showing no signs that it will provide relief any time in the immediate future. 

At RJS LAW, we help businesses with Federal, State, and local Tax Problems including ERC problems.  Please contact us for a free consultation today at 619-595-1655 or via the web at RJS LAW, if you or your business is facing ERC or any other tax related issues. 

Written by Joseph Cole, Esq., LL.M.