Important Update: IRS Cracks Down on Ineligible Employee Retention Credit Claims

The IRS has recently issued an important notice, IR-2023-230, as part of its ongoing efforts to address inappropriate claims related to the Employee Retention Credit (ERC). This development primarily affects businesses that have previously filed for the ERC, especially those who might have been misinformed about their eligibility.

IR-2023-230 marks a significant step in the IRS’s enforcement of compliance regarding the ERC. According to the notice, the IRS is initiating a series of actions including sending more than 20,000 letters to taxpayers to notify them about disallowed ERC claims. This move targets entities that either did not exist or did not pay wages during the credit's eligibility period, which spans from March 13, 2020 to December 31, 2021.

This notice also states that the IRS is currently working on creating a voluntary disclosure program for improperly claimed credits. Taxpayers who have received fraudulent ERC funds will soon be given the ability to come forward and repay the improper refunds without facing punitive measures.

Finally, the notice reminds readers of the existing ERC withdrawal option for pending claims. For further details on this withdrawal option, please see our earlier blog post. The IRS also confirmed that the mortarium on processing new ERC claims will remain in effect until the end of 2023 at minimum.

Key Takeaways

  • If your business did not exist or did not have any employees from March 13, 2020 to December 31, 2021, you may receive a letter from the IRS informing you of ERC ineligibility.
  • If you believe you have received a disallowance letter by mistake, you will have the option to dispute it by filing an administrative appeal.
  • The IRS is in the midst of creating a voluntary disclosure program that will allow employers who improperly claimed credits to repay them without incurring penalties.
  • The IRS continues to intensify its focus on dubious ERC claims, including audits and criminal investigations of both promoters and businesses involved in filing these claims.
  • The option to voluntarily withdraw pending ERC claims remains open. The moratorium on processing new ERC claims will be in effect until at least the end of 2023.

Conclusion

IR-2023-230 underscores the importance of compliance and accuracy in claiming tax credits like the ERC. At Engineered Tax Services, we understand the complexities surrounding such tax matters and are committed to providing our clients with the most up-to-date information and guidance. We encourage businesses to review their ERC claims in light of this new development and reach out to our team for any assistance or clarification needed.

If you, or your clients filed an ERC claim with another provider, that may have been claimed based on aggressive fact patterns, or may not pass IRS scrutiny, feel free to reach out to our team who is offering ERC claim reviews to ensure the accuracy and eligibility or pending claims, and to offer guidance on rescinding those claims prior to pending penalties.

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