Uneasy Claims: IRS Stepping Up Scrutiny on Employee Retention Credit

Internal Revenue Service (IRS)

WASHINGTON, D.C. — The Internal Revenue Service (IRS) continues to work to ensure the Employee Retention Credit (ERC), a lifeline for businesses impacted by the COVID-19 pandemic, is not exploited by fraudulent claims. The IRS, through its Criminal Investigation arm (CI), is taking a proactive approach to this issue by schooling tax professionals on new iterations of the ERC eligibility criteria and claims protocols.

This magnified focus springs from some disconcerting trends, visible most notably in the aggressive marketing strategies employed by promoters that have inadvertently led businesses to file claims without meeting essential requirements. A reaffirmation of the old adage, actions indeed have consequences. As a result, the IRS has put together the Voluntary Disclosure Program and a singular withdrawal program, specially designed for businesses with pending claims.

The Voluntary Disclosure Program offers an olive branch to businesses that may have mistakenly filed a claim and received a payment, allowing them to return 80% of the claim. On the other hand, the special withdrawal program offers employers an escape route where they can retract their ERC claim without having to subsequently cover repayment, interest, or penalties.
To further cement this knowledge among tax professionals, special agents from the CI will conduct nationwide educational sessions. These sessions will cover everything from eligibility criteria to documentation necessities and reporting best practices. The IRS aims for these initiatives to enable tax professionals to guide their clients accurately through the ERC claim process.

However, the IRS has not overlooked past ERC claims. They are undertaking comprehensive reviews of claims made before a moratorium on ERC claims came into effect in September. In safeguarding the treasury, this move is pivotal in protecting businesses from penalties or interest payments that come from fraudulent claims.

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The implications of the IRS’s work on the ERC are considerable. Businesses that staked their claim to the credit without meeting its eligibility criteria could face penalties and interest unless they avail themselves of the Voluntary Disclosure Program or the special withdrawal program.

The ERC has been a much-needed financial salve for businesses affected by the pandemic. Still, it is paramount for these businesses to understand the eligibility requirements and observe due procedures to prevent potential legal repercussions.

In essence, the IRS’s ongoing efforts to review ERC claims, educate tax professionals, and prevent fraudulent activity are aimed at protecting businesses and ensuring the ERC program’s integrity. With the well-being of all taxpayers in focus, businesses are urged to evaluate their eligibility for the credit and consider participating in the Voluntary Disclosure Program or the special withdrawal program if they entertain concerns over their claims.

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