When originally enacted in The Coronavirus Aid, Relief, and Economic Security ("CARES") Act of 2020, the COVID-19 Employee Retention Credit ("ERC") was designed to help employers continue to pay their employees despite the economic hardships related to the pandemic. Since then, there has been increasing concerns around the filing of dubious credit claims by businesses aided by improper promoters or "ERC shops". To combat any misuse of the ERC, the IRS has enacted various programs, outlined below, that employers can use if they feel there is any question surrounding the legitimacy for any or all of their ERC claim(s). Because there have been so many headlines around these various programs, we wanted to combine the information into one place in the hopes that it provides a helpful overview of what is happening in the ERC space. Please reach out with any questions or concerns!
The Moratorium
(see our article on this topic here)
- In September of 2023, the IRS announced a moratorium on the processing of new ERC claims "to allow for more safeguards to prevent future abuse, protect businesses from predatory tactics"
- By pausing the processing of claims, the IRS is able to increase scrutiny on existing claims (600,000+ claims awaiting review) and protect small businesses that may have been taken advantage of by predatory promoters
- There will be an official announcement if/when the moratorium has been lifted and new applications are being accepted again
- Businesses can still file claims after the announcement was made, but they will not be processed unless or until the moratorium is lifted
- The ERC filing deadlines were unaffected by the announcement and remain April 15, 2024 for 2020 time periods, and April 15, 2025 for 2021 time periods
The Withdraw Process
(see our article on this topic here)
- In October of 2023, the IRS announced a process to withdraw a previously submitted questionable or illegitimate ERC claim without penalty or interest
- To be eligible to withdraw an ERC claim, all of the following must be true:
- Claimed the ERC on an adjusted employment tax return (Forms 941-X, 943-X, 944-X, CT-1X)
- Filed the adjusted return only to claim the ERC, and made no other adjustments
- Wishes to withdraw the entire amount of the ERC claim
- The IRS has not paid the claim, or if they did pay the claim, the taxpayer has not cashed or deposited the refund check
- If a taxpayer does not wish to withdraw the entire amount of the ERC claim, then a full withdraw request is not the appropriate process, but rather the taxpayer should consider amending their return instead
The Voluntary Disclosure Program
(see our article on this topic here)
- In December of 2023, the IRS announced a process for taxpayers who received an ERC payment, but were actually ineligible to receive that credit
- Eligible employers are permitted to pay back 80% and retain the other 20% of the claimed ERC amount
- To be eligible to use the voluntary disclosure program, all of the following must be true:
- Received an ERC payment that it was not entitled to
- Not under criminal investigation
- Not in an IRS audit for any tax period(s) for which they are applying for the ERC voluntary disclosure program
- Have not received an IRS demand for ERC repayment, nor has the IRS received information that the taxpayer is not in compliance from an enforcement action
- This program is only available until March 22, 2024 and can be applied for via Form 15434
- If a third-party payer (such as an agent under section 3504 of the Code, a professional employer organization, or a certified professional employer organization) was used to file the ERC claim under the third-party payer’s own EIN, then the application should come from the third-party payer and include their EIN on the application
- An approved ERC-VDP application does not preclude the IRS from pursuing criminal charges for a willfully fraudulent claim
- More information on this program can be found on the FAQ page and the homepage for the program
The Tax Relief for American Families and Workers Act of 2024
(see our article on this topic here)
- This tax package, which passed the House in January, is currently awaiting Senate action and therefore has not passed nor been signed into law
- The bill proposes the potential retroactive early termination of the entire ERC program on 1/31/24, an extension of the statute of limitations for all periods to 6 years, and a retroactive increase to penalties for promoters of fraudulent ERC claims
- We will continue to monitor the bill's progress in Congress
- As of now, the ERC filing deadlines have been unaffected by any of the above, and remain April 15, 2024 for 2020 time periods, and April 15, 2025 for 2021 time periods
If you have any concerns or questions around your ERC filings or wish to work with a professional for your filing, please contact us today.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.