The Clock is Ticking: IRS Identifies Seven (7) ERC Warning Signs in Advance of March 22nd deadline for IRS' Voluntary Disclosure Program

For those procrastinating, or just discerning, taxpayers that are still considering the IRS’ disclosure program for employee retention credit (ERC) claims, the IRS released today seven potential red flags to help taxpayers make a decision before the program closes on March 22, 2024.

The seven potential red flags according to the IRS are:

1. “Too many quarters.” The IRS warns of promoters who encouraged employers to claim ERC for all quarters, as the IRS believes that qualifying for all quarters is uncommon.
2. “Government orders that don’t qualify.” The IRS warns of ERC claims based on government orders that did not actually affect or suspend business operations, as required.
3. “Too many employees and wrong calculations.” The IRS warns of sloppy or high-level calculations that did not consider changes in the law.
4. “Business citing supply chain issues.” The IRS believes that qualifying for ERC based on supply chain disruption is uncommon.
5. “Business claiming ERC for too much of a tax period.” While possible, the IRS believes it is uncommon for employers to qualify for ERC for an entire quarter if their business operations were fully or partially suspended due a government order that was only in effect for part of the quarter.”
6. “Business didn’t pay wages or didn’t exist during the eligibility period.” The IRS warns of sloppy ERC claims based on periods where the business did not have employees or did not pay employees.
7. “Promoter says there’s nothing to lose.” The IRS warns that businesses should be on “high alert” where promoters encouraged employers to file ERC claims based on fuzzy or questionable eligibility, advocating that there is no downside to doing so. The IRS points out that businesses that incorrectly claim ERC risk repayment of the taxes with penalties and interest, as well as audit and other expenses.

The complete IRS release is linked HERE.

With only two days left before the IRS voluntary disclosure program closes, the time is now to evaluate ERC claims, assesses IRS and tax risks, and develop litigation hazards to see if the IRS disclosure program is good fit.

If you have any questions about this Blog post or any other Treasury, IRS or tax-related matter, feel free to contact me directly at (214) 749-2464 or adaddino@meadowscollier.com.