ERC Updates: Could Your Business Be at Risk for Incorrect Claims?
The Employee Retention Credit (ERC) was designed to aid businesses impacted by the pandemic. However, in the rush to claim benefits, many businesses made eligibility errors, leading to improper claims. With the IRS intensifying its review and recovery efforts, understanding potential pitfalls and the audit process is essential. G&S Accountancy offers guidance to help businesses address these issues and ensure compliance, helping ... moreERC Updates: Could Your Business Be at Risk for Incorrect Claims?
The Employee Retention Credit (ERC) was designed to aid businesses impacted by the pandemic. However, in the rush to claim benefits, many businesses made eligibility errors, leading to improper claims. With the IRS intensifying its review and recovery efforts, understanding potential pitfalls and the audit process is essential. G&S Accountancy offers guidance to help businesses address these issues and ensure compliance, helping them navigate the complexities and get back on track effectively.
Why Are ERC Claims Under Increased IRS Scrutiny?
Many businesses and advisors miscalculated ERC eligibility due to evolving guidelines and unclear criteria, particularly regarding qualifying periods and conditions. Errors can result in significant financial repercussions if left unaddressed. The IRS has introduced programs allowing businesses to repay improperly claimed credits and avoid penalties, but these require careful consideration. Compounding the issue, some third-party advisors have promised results without a full understanding of the program’s rules, further complicating compliance efforts.
IRS Enforcement and Compliance Challenges
The IRS has rolled out several initiatives to address improper ERC claims:
80 Percent ERC Payback Scheme
The IRS has introduced an 80% payback program for businesses that recognize incorrect ERC claims. This allows them to return 80% of the credit while retaining 20% tax-free, along with any interest received (though the interest is taxable). To participate, businesses must act quickly, including submitting an adjustment request by March 22, 2024, and signing a closing agreement within ten days of receipt from the IRS.
85% Repayment Option for 2021 ERC Claims
The IRS has introduced a second initiative for 2021 ERC claims, allowing businesses to repay 85% of improperly claimed credits while keeping 15% tax-free. Businesses must meet strict criteria, including not being under IRS criminal investigation or employment tax examination for 2021. Applications must be submitted by November 22, 2024.
Pending legislation, H.R. 7024, could have a major effect on ERC claims by increasing penalties for errors and extending the statute of limitations to six years. This would give the IRS additional time to review and recover improperly claimed credits.
The IRS is facing a significant backlog of ERC claims, with around 1.4 million still unprocessed as of September 2024. While some businesses have started receiving payments, many are still waiting. Additionally, the IRS has begun sending disallowance letters, some of which may contain errors, further complicating the situation for businesses awaiting refunds.
What Can Go Wrong with Your ERC Claim?
Improper ERC claims can arise from various sources, including:
Many businesses misinterpreted eligibility criteria, particularly regarding revenue decline thresholds or disruptions to operations. As a result, some businesses filed incorrect claims for periods in which they were not eligible.
Over-Reliance on Third Parties:
Some businesses relied on advisors who promised ERC refunds without properly evaluating eligibility. Now, the IRS requires these businesses to disclose information about the advisors when participating in voluntary disclosure programs, which could expose both the businesses and advisors to increased scrutiny.
How G&S Accountancy Inc. Can Help You Get Back on Track
If you suspect your ERC claim was miscalculated, it's crucial to act proactively before the IRS intervenes. We offer comprehensive support for businesses, including those in transportation, logistics, and non-profit sectors, which have specific compliance needs. Our team can help you review and correct your claim, ensuring it meets all eligibility requirements and guiding you through the process to mitigate potential risks.
ERC Claim Review and Audit Preparation: We thoroughly assess your ERC claims to ensure they comply with IRS guidelines, identify potential errors, and suggest corrective actions.
Voluntary Disclosure Assistance: We guide you through the IRS's voluntary payback programs, ensuring timely compliance with all requirements.
Representation and Risk Mitigation: If under IRS examination, we offer professional representation to help reduce penalties and secure the best possible outcome for your business.
Stay Ahead of Potential Issues
The IRS’s changing approach to ERC compliance highlights the importance of proactive management.
Given the potential delays and the risk of disallowance, businesses could face uncertainty for extended periods.
With G&S Accountancy Inc. by your side, you can navigate these uncertainties with confidence, knowing that our experienced team is here to help you stay compliant and mitigate financial risks.
Contact G&S Accountancy today to schedule a consultation and ensure your ERC claims are correctly managed, protecting your business from unexpected liabilities.
