The IRS has stopped processing new claims for the Employee Retention Credit due to the number of filings by aggressive “ERC mills” luring ineligible businesses to file bogus claims. Along with this moratorium on the ERC, which will last at least through the end of this year, the IRS strongly encourages companies to work with qualified tax professionals rather than shady promoters.
What is the Employee Retention Credit?
The Employee Retention Credit was a tax credit available for businesses and non-profit organizations to incentivize them to keep paying their employees during the COVID-19 pandemic. However, now the IRS is dealing with unscrupulous companies whose marketing tactics include luring businesses and taxpayers to believe they qualify for credits…even when they don’t. The IRS often sees blatant misrepresentation on the part of these ERC mills.
Do I qualify?
Still wondering whether you legitimately qualify for the ERC? Here’s a quick checklist:
- Did you pay your employees wages between March 13, 2020 and December 31, 2021?
- If so, do you have the proper records to back up your payroll, such as documents that prove wages paid, gross receipts, etc.?
- If both 1 and 2 above are true, consult a trusted tax professional to help guide you through your application.
- If you believe you have improperly claimed an Employee Retention Credit, you can withdraw your claim if it has not been processed. The IRS is preparing a settlement initiative for taxpayers who now believe they should not have claimed the ERC and want to repay it. The program may function as a kind of amnesty for correcting errant ERC claims without incurring penalties. Check with your accounting professional for details.
Why is it needed?
The moratorium is intended to send a strong signal to the companies that are improperly marketing services to businesses that do not qualify for a legal credit, and the IRS wants business owners to consult with trusted tax professionals rather than fly-by-night promoters out to make money off of a (possibly) fraudulent application. It’s intended to mitigate the damage for business owners who fall for unscrupulous scams. As a reminder, anyone who improperly claims the ERC must pay it back–possibly with penalties and interest.
The IRS believes that once the door closes on some of these credit mills, legitimate, qualified tax professionals will still be able to submit proper claims. In the meantime, don’t fall for the aggressive marketing tactics promoted by the ERC mills. They are pushing even harder because the deadlines are looming.
Deadlines
Clients have until April 15, 2024, to claim the 2020 credit, until April 15, 2025, to claim the 2021 credit.
For more info, see IRS.gov/ercqualified, and for further guidance personalized to your situation, contact us.
