The IRS announced on October 10, 2024, significant progress in processing approximately 400,000 Employee Retention Credit (ERC) claims, representing $10 billion in eligible claims. These claims, part of a pandemic-era program, have been delayed due to a high volume of improper claims driven by aggressive marketing. To address this, the IRS introduced a consolidated claim process for third-party payers and continues audits and investigations into fraudulent claims.
Your business may be eligible to participate in the Voluntary Disclosure Program (VDP), which helps repay erroneous refunds due to ERC scams. The settlement program will be open until November 22, 2024, with reduced penalties. Keep reading for more from a skilled Georgia federal investigations defense lawyer.
What is the employee retention credit (ERC)?
The ERC is part of the 2020 CARES Act (Coronavirus Aid, Relief, and Economic Security Act), which offers businesses coverage for qualified wages paid to employees from March 13, 2020, through September 30, 2021. Employers file a refund claim for any relevant quarter, and while many ERC claims have been paid, the IRS still has a pending backlog.
October 2024 update
The IRS has announced ongoing progress in processing around 400,000 Employee Retention Credit (ERC) claims, representing $10 billion in eligible refunds. This large volume of claims stems from the pandemic-era credit, but many ineligible claims have been submitted due to aggressive and often misleading marketing by promoters. While the IRS works to process legitimate claims quickly, it has intensified audits and investigations into fraudulent submissions.
To streamline the process, the IRS introduced a consolidated claim option for third-party payers to withdraw incorrect claims on behalf of their clients while maintaining valid claims. Additionally, the IRS continues to pursue civil and criminal investigations into fraudulent ERC claims. It has reopened its Voluntary Disclosure Program (VDP) through November 22, 2024, allowing businesses to correct erroneous claims with reduced penalties.
As the IRS increases its scrutiny of improper ERC claims, businesses are encouraged to review their claims carefully and seek the guidance of trusted tax professionals.
Fraudulent claims
Individuals who intentionally submitted a fraudulent claim or were involved in such misconduct as accomplices or conspirators should be mindful that withdrawing the fraudulent claim does not exempt them from potential criminal investigation and prosecution.
Conducting thorough compliance reviews of existing claims protects businesses and organizations from penalties or interest payments resulting from fraudulent claims promoted by unscrupulous entities but also ensures the system’s integrity.
The IRS continues to caution taxpayers to exercise extreme caution when applying for the Employee Retention Credit (ERC), as marketers and scammers continue to employ aggressive tactics.
Furthermore, the IRS is developing guidance to assist employers who were misled into claiming the ERC and have already received payment. Additional details on this guidance will be made available soon.
Who can ask to withdraw an ERC claim?
Employers can use the ERC claim withdrawal process if all of the following apply:
- They made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
- They filed the adjusted return only to claim the ERC, and they made no other adjustments.
- They want to withdraw the entire amount of their ERC claim.
- The IRS has not paid their claim, or the IRS has paid the claim, but they haven’t cashed or deposited the refund check.
Taxpayers not eligible to use the withdrawal process can reduce or eliminate their ERC claim by filing an amended return. For details, see the Correcting an ERC claim – Amending a return section of the frequently asked questions about the ERC.
Instructions to withdraw an ERC claim
To take advantage of the claim withdrawal procedure, taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyerc, summarized below.
If you used a professional payroll company…
Taxpayers whose professional payroll company filed their ERC claim should consult with the payroll company. Depending on whether the taxpayer’s ERC claim was filed individually or batched with others, the payroll company may need to submit the withdrawal request for the taxpayer.
If you filed a claim yourself…
Taxpayers who filed their ERC claims themselves, haven’t received, cashed or deposited a refund check and have not been notified their claim is under audit should fax withdrawal requests to the IRS using computer or mobile device. The IRS has set up a special fax line to receive withdrawal requests. This enables the agency to stop processing before the refund is approved. Taxpayers who cannot fax their withdrawal using a computer or mobile device can mail their request, but this will take longer for the IRS to receive.
Employers notified they are under audit can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.
Those who received a refund check, but haven’t cashed or deposited it, can still withdraw their claim. They should mail the voided check with their withdrawal request using the instructions at IRS.gov/withdrawmyerc.
Advice for taxpayers
As ERC scams abound, many qualifying business owners may wonder, “Can I still file for employee retention credit?” The answer depends on where the business is in the process of filing its ERC credit.
For those awaiting an ERC claim…
If your business has already filed a claim, the IRS will process it. However, these complex claims have strict compliance measures, slowing the process down even more. Individual claims will not be expedited.
If your business has a pending ERC application, you may wish to explore one of these options with the help of an experienced tax preparation professional or tax attorney:
For those who have yet to file a claim…
You can review the guidelines and wait to file under the guidance of your tax attorney. The IRS recommends discussing your claim with a tax professional and being wary of an aggressive promotional firm. These entities may take a large fee upfront, promising an even larger tax credit, only to leave business owners facing repayment of an erroneous refund. An attorney can help you determine if your business qualifies and protect you against allegations of fraud or other IRS complications.
For those who wish to wait for the IRS ERC settlement program to begin
If you believe you received an ERC in error, you may be eligible to participate in a settlement program to repay the misapplied credit. This settlement program allows businesses to avoid further IRS compliance actions, audits, or other penalties.
How to report ERC fraud
Who is proposing your business file for an ERC? Is it your trusted tax attorney or CPA or a marketing or promotional agent? If it’s the latter, it’s likely a scam. The credit is complex, and business owners should follow the advice of their tax lawyer, not a commission-based marketing agency.
Griffin Durham Tanner & Clarkson LLC can help
At Griffin Durham Tanner & Clarkson LLC, we specialize in defending businesses involved in IRS investigations, helping clients navigate complex tax issues, and ensuring compliance with federal regulations. If your business is facing ERC-related concerns, contact our experienced team to protect your interests and avoid costly penalties.
For a professional consultation, contact our offices today in Atlanta at (404) 891-9150 or Savannah at (912) 867-9140.