Employee Retention Credit Updates

The IRS has implemented several programs to reduce fraudulent ERC refunds. Practitioners need to understand claim disallowance appeals, requests for additional information, and the voluntary disclosure program

The IRS has warned businesses about ERC promoters and highlighted tax preparers' responsibility for due diligence. It also announced a moratorium on issuing ERC-related refunds, made an ERC claim withdrawal process available, and implemented a voluntary disclosure program

If a client received a disallowance letter and they did not meet any qualifications for the ERC, then they should do nothing. However, if they did meet the qualifications, they should file an appeal.

The appeal process will follow either a small-dollar case (for amounts of $25,000 or less) or a formal protest (for credits larger than $25,000).

The IRS is using the data from the voluntary disclosure programs to review commonly listed third-party preparers and prosecute fraudulent ERC situations. It is also auditing ERC claims and may diligently seek to show that ERC claim filings were fraudulent to extend the statute of limitation.

Advisers may be asked to assist clients through the appeal and audit processes. It is essential that businesses meet the qualifications set out by the IRS. As an adviser, it is important to perform due diligence with clients’ ERC claims and to inform clients of potential penalties.