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ERC 2021 Recapture Letters on the Horizon

By Jeffrey M. Glassman on May 24, 2024
The IRS has been actively issuing notices regarding the recapture of excess employee retention credits (ERC). And, based on IRS public comments, it is anticipated that they will soon begin sending out recapture letters for the year 2021. Tax professionals should be aware that the receipt of such a letter does not necessarily indicate an invalid claim. Instead, it suggests that there is a discrepancy that has triggered an alert in the IRS system.

This discrepancy could be due to a variety of reasons. For instance, there might be a mismatch between the number of employees reported to the Social Security Administration and the number claimed for the credit. Alternatively, the IRS's records may not reflect that the business claiming the credit is currently operating. The possibilities for these discrepancies are countless.

When a business receives a recapture letter, it is imperative to review the letter and determine what action should be taken. Taxpayers can generally respond to IRS correspondence and highlight any IRS errors. Sometimes that alone will be sufficient for resolving an issue, but often that is just the first step in the process.

Tax professionals should advise their clients to maintain thorough and accurate records of their ERC claims. In the event of a recapture letter, these records will be invaluable in resolving any discrepancies with the IRS.

As the IRS continues to scrutinize ERC claims, staying informed and prepared is the best defense. By understanding the reasons behind recapture letters and knowing how to respond effectively, tax professionals can help their clients maintain compliance and uphold their claims.

If you have any questions about this article, an ERC issue, or any other civil or criminal tax matter, please contact me at jglassman@meadowscollier.com or 214-749-2417.