Employers and IRS Tackle Fraudulent and Inaccurate ERTC Claims
March and April are tax season for organizations and individuals and the Internal Revenue Service (IRS) has been on a crusade against the ongoing issue of aggressive marketing tactics and fraudulent and ineligible claims of Employee Retention Tax Credits.
The IRS.gov website says that the ERC or ERTC “is a refundable tax credit for certain eligible businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic.”
The IRS established the Employee Retention Credit Voluntary Disclosure Program (ERC-VDP) for businesses, organizations, and government entities that received the ERC but were ineligible.
The program allows participants to voluntarily repay the ERC, cooperate with the IRS, and sign a closing agreement. Advantages of the ERC-VDP include repaying only 80% of the received ERC, no repayment of interest, and no need to amend income tax returns.
The application process involves completing Form 15434 and, if applicable, Form SS-10, and submitting them via the IRS Document Upload Tool by March 22, 2024. The IRS recommends consulting a trusted tax professional for assistance with the ERC-VDP or ERC-related concerns.
The IRS has cautioned small businesses about potential inaccuracies in Employee Retention Credit (ERC) claims and highlighted seven suspicious signs indicating incorrect claims. These signs include:
- Claiming too many quarters. Some promoters have pushed employers to claim the ERC for all quarters the credit is available. This is a sign of an incorrect claim.
- Claiming due to invalid government orders that do not meet eligibility guidelines.
- Too many employees and wrong calculations. The IRS urges employers to carefully review calculations and avoid overclaiming the ERC.
- Qualifying for ERC based on a supply chain disruption is very uncommon. An employer needs to ensure that their supplier’s government order meets the requirements.
- Business claiming ERC for too much of a tax period.
- Business did not pay wages or did not exist during eligibility period.
- Businesses should be suspicious of any ERC promoter who urges them to claim ERC because they “have nothing to lose.”
The IRS advises businesses to review their eligibility with the ERC eligibility checklist before the March 22 deadline and avoid misleading promotions and inaccuracies. Special programs for withdrawal or repayment are available for businesses needing to correct their claims.
An IRS website article provides guidance on how to withdraw a claim for the ERC if someone has filed for a refund and wishes to retract it. The withdrawal process is outlined for taxpayers who have not yet received the ERC payment or have received a check but have not cashed or deposited it.
It emphasizes that withdrawn claims will be treated as if they were never filed, with no penalties or interest imposed by the IRS. It notes however, that if someone has already received the ERC, they cannot use the withdrawal process but may be eligible for the Voluntary Disclosure Program.
In September of 2023, the IRS also announced a moratorium on processing new claims for the ERC. The moratorium will be in place until at least the end of the year to protect honest small business owners from scams.
The agency plans to implement stricter compliance measures during the moratorium and work with the Justice Department to pursue fraud cases. The IRS continues to develop initiatives to help victims of aggressive promoters, including a settlement program for improper ERC payments.
Visit the official IRS website’s Employee Retention Credit general information page at IRS.gov/erc to learn more about the various programs in place to support employers and protect against fraud.