The IRS has identified two new red flags in Employee Retention Credit (ERC) claims: businesses double-dipping on wage claims (like using wages for both the ERC and Paycheck Protection Program forgiveness) and claiming disruptions from mask-wearing as operational suspensions. These new warnings add to seven earlier issues the IRS flagged.
Those seven red flags include:
- Too many quarters are being claimed
- Government orders that don’t qualify
- Too many employees and wrong calculations
- Business citing supply chain issues.
- Business claiming ERC for too much of a tax period
- The business didn’t pay wages or didn’t exist during the eligibility period
- The promoter says there’s nothing to lose.
Be sure to review any claims for these warning signs to ensure accuracy and eligibility, especially if your claim was based on bad advice from promoters. For example, your claim could be flagged if your business operated fully during the pandemic without a decline in gross receipts or if family members’ wages were improperly included.
IRS Commissioner Danny Werfel urges businesses to work with trusted tax professionals to review claims and avoid improper filings. The IRS has been digitizing and analyzing claims for red flags, with about 1 million claims totaling over $86 billion already under review.
While the IRS continues to focus on high-risk claims, it will begin paying out lower-risk claims for legitimate tax periods. Businesses with concerns can also consider using the ERC Withdrawal Program to avoid compliance issues.
Suppose you claimed and received the Employee Retention Credit (ERC) for the 2021 tax period, but you are ineligible and need to repay the ERC. In that case, you can apply for the second Employee Retention Credit Voluntary Disclosure Program (second ERC-VDP).
The second ERC-VDP is open through Nov. 22, 2024, for 2021 tax periods. The program for the 2020 tax period is no longer available. The second ERC-VDP program requires you to:
- Complete and send an application package for the second ERC Voluntary Disclosure Program,
- Voluntarily pay back the ERC, minus 15%
- Cooperate with any requests from the IRS for more information, and
- Sign a closing agreement.
If you realize you claimed credits you weren’t entitled to, be sure to apply for the voluntary disclosure program to remit 85% of the credit you received and avoid penalties and interest in the future when the IRS sends a notice requiring full payment for the erroneous payout.
If you need assistance with submitting voluntary disclosure filings, we can help! Reach out to us at 310-534-5577 or [email protected] and we’ll let you know what information is required to file your return.
IRS issues more warning signs of bad ERC claims | Accounting Today
