IRS CRACKS DOWN ON DUBIOUS ERC CLAIMS

Robert Bell, CPA, Audit + Tax Manager

The IRS is taking action to prevent fraudulent claims within the Employee Retention Credit (ERC) program. This credit provided crucial relief to many during the pandemic, however, some bad actors saw an opportunity to exploit it. Here is the summary of key points:

• 20,000 initial letters sent: Targeting claims filed by non-existent businesses or those without employees during the eligibility window (March 2020 – December 2021).
• More Letters Coming: Disallowances and refund requests will be issued to those who mistakenly claimed the credit.
• Focus on two areas: (1) Claims from entities not in existence during the eligibility period; and (2) those with no paid employees during the period.

The IRS has a voluntary disclosure program where it gives a chance to rectify any issues with questionable ERC claims. They also have a claim withdrawal option where claimants can withdrawal inaccurate claims penalty free.

Beware of aggressive marketing! If it sounds too good to be true, it probably is. Some red flags are companies claiming a fast ERC windfall with low costs. We’ve seen promises (and claims) of qualifying all eligible quarters without even reviewing the financial statements.

Its important to maintain meticulous records with detailed documentation of payroll, closures and government orders. Keeping these records are crucial evidence in the event of an IRS inquiry.

If your business has filed for the ERC and receives a letter questioning the claim, stay calm, gather your documentation and don’t hesitate to call us. We are here to help!