IRS Wants to Hear from Employee Retention Credit Recipients

The IRS is extending an olive branch to businesses that received tax credits related to COVID-19 in error.

The tax cops are launching a second Employee Retention Credit (ERC) voluntary self-disclosure program to run through November 22. Previous ERC claims deemed improper by the IRS can be submitted.

The good news: Employers that file can avoid the risk of being audited down the line or assessed penalties and interest. And folks that come forward will only need to pay back 85% of ERC claims they were paid in error.

Some business owners and administrators responded to third-party offers — the lion’s share of them scams — to secure the ERC. IRS warned the public about scam artists and is pursuing criminal charges against offenders. IRS alerted businesses to the most common red flags in ERC claims and urged them to double-check claims before submitting or risk being denied.

Some ERC Claimants Forced to Wait

What about businesses that filed ERC claims in good faith and have yet to receive credit? They’re still waiting for IRS to go through a backlog of claims before eventually paying out. IRS is telling claimants to be patient and wait to hear from them. Don’t waste time calling or emailing to get a quicker response.

Fewer than 20% of ERC claims are considered to be legitimate by IRS’ accounting. IRS estimates it paid out more than $1 billion to “error-ridden” ERC claims before issuing a moratorium on the program. “The push by [ERC] promoters flooded the IRS with questionable ERC claims, which clogged our systems and slowed work,” IRS chief Danny Werfel laments. “We recognize well-meaning businesses are caught up in this, and we are taking important steps to help them.”

To be eligible for the ERC, a claimant needs to show it:

• sustained a full or partial suspension due to government COVID-19 shutdowns from 2020 through September 2021
• suffered a significant decline in gross receipts in 2020 or a decline in gross receipts during the first three quarters of 2021, or
• qualified as a recovery startup business for the third or fourth quarters of 2021.