In a recent development, the Internal Revenue Service (IRS) is urging small business owners to reevaluate their eligibility for the employee retention credit (ERC) and promptly withdraw any unqualified applications. The ERC, a refundable tax credit designed to incentivize employee retention during the COVID-19 pandemic, could amount to tens of thousands of dollars for eligible employers.
This call to action from the IRS follows months of cautionary warnings about ERC promoters who have been over-qualifying unsuspecting business owners, leading to a halt in processing claims. This has left some taxpayers potentially liable for returning the credit and facing penalties and interest charges.
Roy Chaney, senior stakeholder liaison with the IRS, emphasized the financial incentives for promoters collecting contingency fees based on ERC refunds. He stressed the importance of taxpayers independently verifying their eligibility to receive the credit.
While the ERC allows employers to retroactively claim the credit until 2024 for 2020 payrolls and 2025 for 2021 payrolls, the IRS temporarily suspended processing new applications due to the prevalence of fraudulent practices by so-called “ERC mills.” These online entities, often lacking tax-filing experience, filed claims on behalf of small business owners who were not actually eligible for the credit.
The IRS is actively collaborating with the Justice Department to combat fraud in the ERC program and target promoters who have disregarded the rules. The Criminal Investigation Division of the IRS is working to identify and potentially refer cases of fraudulent claims for prosecution.
Despite these measures, the IRS is extending an olive branch to small businesses inadvertently caught up in these schemes. Business owners are encouraged to verify their ERC eligibility by consulting the agency’s qualification checklist or seeking advice from a trusted accountant. This is particularly crucial for those who may have used an ERC mill.
To initiate a withdrawal, taxpayers must follow specific steps based on their return status. For those who filed the credit through a return but haven’t received a refund or been notified of an audit, they can submit a claim withdrawal request by fax. Taxpayers under audit can similarly utilize this process. Those who received a refund check but haven’t cashed it must send a package with various documents to the IRS.
The IRS is currently working on a withdrawal process for taxpayers who have already cashed or deposited their refunds. It’s important to note that businesses that did not receive payment and choose to withdraw their claim will not be subject to penalty charges.
In summary, the IRS is taking action to rectify potentially erroneous ERC claims by urging small business owners to review their eligibility. By following specific procedures outlined by the IRS, businesses can withdraw unqualified applications and avoid penalties or interest charges. The agency’s efforts underscore the importance of maintaining integrity in tax credit programs and protecting honest taxpayers from unscrupulous promoters.
Source: Yahoo Finance
