Last week, (March 7, 2023) the Internal Revenue Service (IRS) issued another warning urging businesses to review the guidelines laid out for the Employee Retention Credit (ERC) before proceeding to claim the credit on their annual tax returns. This second warning (the first issued in the Fall 2022) is a result of rising numbers of third party “promoters” claiming to be ERC tax experts who are aggressively pushing ineligible taxpayers to file the credit while they charge sizeable upfront fees.
The ERC was established during the COVID-19 pandemic to provide a lifeline to businesses who continued paying employees during shutdowns and/or those businesses that had significant declines in gross receipts from March 13, 2020–December 31, 2021. Eligible taxpayers can claim the ERC on an original or amended employment tax return for a period within those dates.
To be eligible for the ERC, employers must meet one the following conditions:
- They sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19 during 2020 or the first three quarters of 2021.
- The business experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021.
- The employer qualified as a recovery startup business for 2021.
The ERC schemes are quite prevalent, and third party “promoters” are advertising on the radio, television and via social media, making false claims about potential tax benefits while asking for upfront fees and down payments for their services. These fees are often contingent on the amount of the expected tax refund. In addition, these “promoters” may not inform taxpayers that wage deductions claimed on their business’ federal income tax return must be reduced by the amount of the credit.
IRS Commissioner, Doug O’Donnell, said in a recent interview, “Anyone who is considering claiming this credit needs to carefully review the guidelines. If the tax professional they’re using raises questions about the accuracy of the Employee Retention Credit claim, people should listen to their advice. The IRS is actively auditing and conducting criminal investigations related to these false claims. People need to think twice before claiming this.”
Our CSH Government Funding Tax Team is here to support businesses and employers with expert, professional guidance related to the Employee Retention Credit (ERC) and how it can or cannot be applied to your unique business situation. Please reach out with any ERC questions or if you believe your company may have inaccurately filed for the Employee Retention Credit to Phil Hurak or Tom Lacy.
