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IRS Issues Not-So-Soft Letters to 20,000 Taxpayers Disallowing ERC Claims

By Anthony P. Daddino on December 8, 2023
On Wednesday, the IRS announced the mailing of more than 20,000 letters to taxpayers notifying them of disallowed ERC claims. According to the announcement, the IRS is disallowing claims to entities that did not exist or did not have paid employees during the period of eligibility. This will be the first round of presumptively several rounds of letters, as the IRS continues to aggressively pursue ERC claims.

The IRS mailing is the latest in an expanded compliance effort that includes a special withdrawal program for those with pending claims who realize they may have filed an inaccurate tax return. Later this month, the IRS has stated that a separate voluntary disclosure program will be unveiled allowing those who received questionable payments to come in and avoid future IRS action.

"With the aggressive marketing we saw with this credit, it's not surprising that we're seeing claims that clearly fall outside of the legal requirements," said IRS Commissioner Danny Werfel. "The action we are taking today is part of an initial set of steps in our compliance work in this area, and more letters will be going out in the near future, including both disallowance letters and letters seeking the return of funds erroneously claimed and received."

"As we continue our audit and criminal investigation work involving the Employee Retention Credits, we continue to urge people who submitted a claim to review the rules with a trusted tax professional. If they filed an inaccurate claim, we urge them to consider withdrawing their pending claim or use the upcoming disclosure program to repay improper refunds to avoid future action."

For those of you following recent headlines, the IRS announced Sept. 14 a moratorium on processing new ERC claims through at least the end of 2023. The IRS noted that enhanced compliance reviews of existing claims submitted before the moratorium is critical to protect against fraud and also to protect businesses and organizations from facing penalties or interest payments stemming from allegedly bad claims pushed by so-called promoters. And as noted above, the IRS also recently announced a special withdrawal option that allows certain employers that filed an ERC claim but have not yet received a refund (or received a refund, but not yet cashed the check) to withdraw their submission and avoid future repayment, interest and penalties.

A copy of the IRS announcement is linked HERE.

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.