In a recent announcement, the Internal Revenue Service (IRS) has called upon small business owners who have previously claimed the Employee Retention Credit (ERC) to revisit their eligibility and promptly withdraw any applications that do not meet the necessary criteria. The ERC, a potentially lucrative tax credit designed to encourage employee retention during the COVID-19 pandemic, has been the target of unscrupulous promoters who have led unwitting business owners to over-qualify for the credit.
The move by IRS comes after months of warnings about aggressive ERC promoters who have been guiding business owners to claim the credit without proper eligibility. This practice has prompted the IRS to halt the processing of ERC claims, leaving some taxpayers at risk of having to repay the credit along with potential penalties and interest charges.
Roy Chaney, senior stakeholder liaison with the IRS, emphasized the significance of independently verifying eligibility for the ERC, stating, “A promoter can collect a hefty contingency fee paid from the ERC refunds.” He highlighted the need for taxpayers to take precautionary steps to ensure their eligibility for the credit.
The ERC, a refundable tax credit, was introduced to support businesses and tax-exempt organizations affected by the pandemic. Qualified employers can claim up to $26,000 per worker on their payroll between March 12, 2020, and December 31, 2021. While the credit can be retroactively claimed until 2024 for 2020 payrolls and 2025 for 2021 payrolls, the IRS had suspended the processing and acceptance of new applications due to the proliferation of scams orchestrated by “ERC mills.”
ERC mills, often unverified online entities without prior tax-filing experience, have made claims on behalf of small business owners who would not have been eligible for the credit. These mills often received a portion of the refund as a fee, sometimes upfront and other times after the IRS issued a refund. Prior to the suspension, many unsuspecting small business owners received undeserved tax refund money and are now faced with the prospect of returning it.
The IRS is actively collaborating with the Justice Department to combat fraud in the ERC program and address promoters who have been disregarding the rules. The IRS Criminal Investigation Division is working to identify fraudulent claims and promoters for potential prosecution.
Nevertheless, the IRS is providing an opportunity for small businesses that inadvertently got caught up in fraudulent ERC claims. Business owners are encouraged to verify their eligibility by reviewing the IRS’s ERC qualification checklist or consulting with a trusted accountant, even if they have already submitted their return through an ERC mill.
The withdrawal process for taxpayers depends on their return status:
– Taxpayers who filed for the credit but haven’t received a refund or audit notification can submit a claim withdrawal request by signing and dating their original return copy with the word “withdrawn” and faxing it to the IRS.
– Those under audit can use the same withdrawal request and send it to their IRS auditor.
– Taxpayers who received a refund check but haven’t cashed it need to send a package including the claim withdrawal request, voided refund check, a written explanation, and copies of their ERC return to the IRS.
– The IRS is still working on a withdrawal process for taxpayers who have already cashed or deposited their refunds.
It’s important to note that businesses that did not receive payment and withdraw their claim will not face penalty charges.
The IRS is committed to assisting small businesses in rectifying ERC claims and ensuring that those eligible for the credit receive the benefits they deserve.
Source: Yahoo Finance
