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IRS Taps into its Inner ‘Letterman' in releasing Top 7 Signs of Improper ERC

By Anthony P. Daddino on February 14, 2024
For those of you who missed it, the IRS launched a voluntary disclosure program for taxpayers that may have improperly claimed employee retentions credits (ERCs). With the March 22nd program deadline looming, the IRS announced yesterday its “Top 7” list highlighting warning signs that an ERC claim may be questionable.

With the IRS’ announcement and complete list linked HERE, below is a brief summary:

  1. Too many quarters being claimed. Some promoters have urged employers to claim the ERC for all quarters that the credit was available. Employers should carefully review eligibility for each quarter.
  2. Government orders that don't qualify. Some promoters have told employers they can claim the ERC if any government order was in place in their geographic area, even if their operations weren't affected. Employers should make sure they have documentation of the government order related to COVID-19 and how and when it suspended their operations.
  3. Too many employees and wrong calculations. The IRS states that employers should be cautious about claiming the ERC for all wages paid to every employee on their payroll. The law changed throughout 2020 and 2021. There are dollar limits and varying credit amounts, and employers need to meet certain rules for wages to be considered qualified wages. The IRS urges employers to carefully review all calculations and to avoid overclaiming the credit.
  4. Business citing supply chain issues. The IRS believes that qualifying for ERC based on a supply chain disruption is uncommon. According to the IRS, a supply chain disruption in isolation doesn't qualify an employer for ERC.
  5. Business claiming ERC for too much of a tax period. The IRS warns taxpayers about claiming credits for a full quarter where their business operations were fully or partially suspended due to a government order for just a portion of the quarter.
  6. Business didn't pay wages or didn't exist during eligibility period. According to the IRS, some employers have been overzealous in claiming ERC for periods where they did not have employees or did not pay them.
  7. Promoter says there's nothing to lose. The IRS warns that businesses should be on high alert with any ERC promoter who urged them to claim ERC because they “have nothing to lose.” Businesses that incorrectly claim the ERC risk repayment requirements, penalties, interest, audit and potential expenses of hiring someone to help resolve the incorrect claim, amend previous returns or represent them in an audit.
As mentioned above, the IRS’ alert comes as a March 22, 2024 deadline approaches for the ERC voluntary disclosure program for anyone that filed a claim in error and received a payment. The disclosure program allows businesses to repay just 80% of the claim. [For more information about the ERC voluntary disclosure program, see my prior Blog post linked HERE.] Taxpayers who filed a claim previously that hasn't been processed, and are worried about their eligibility, also have the option to pursue a claim withdrawal through established IRS guidelines.

The time is now for taxpayers to review their ERC claims to confirm their eligibility and calculations.

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.