On 3/29/24, the IRS continued the release of the Dirty Dozen scams for 2024 with a warning to businesses and others to stay clear from promoters and marketers that stir ineligible business to submit incorrect Employee Retention Credit claims. The IRS warning clearly states that business owners should contact a trusted professional advisor to “avoid potential IRS compliance in the future.” “We remain concerned that unscrupulous promoters and numerous myths about eligibility for this credit could put well-meaning businesses at risk,” said IRS Commissioner Danny Werfel. “Before anyone files an Employee Retention Credit claim, they should carefully review the eligibility guidelines and talk to a trusted tax professional. Relying on a marketer who is looking to take a hefty percentage fee of the potential claim adds risk for well-meaning businesses given the ongoing IRS compliance work.” Submitting incorrect Employee Retention Credit claims places a business in jeopardy of penalties, interest, and potentially even criminal prosecution. Business owners need to understand that the IRS is intensifying audits and criminal investigations in this area.

Employee Retention Credit

Is a refundable tax credit that was designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were either fully or partially suspended due to a government order or had a decline or significant decline in gross receipts during the eligibility periods. Despite the “well intended nature” of the program, promoters and marketers looked to take high percentage fees from the claims by misrepresenting eligibility rules to businesses and their owners. As a result, the IRS created a Withdrawal Option to assist business owners that were misled by promoters and marketers into filing ineligible claims.

Withdrawal Option

The good news is that the IRS continues to accept and process requests to withdraw an employer’s full Employee Retention Credit claim under a special withdrawal process. The withdrawal option allows certain employers that filed a claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest, and penalties. “Employers that submitted an ERC claim that have not yet been paid can withdraw their claim and avoid the possibility of getting a refund for which they’re ineligible. They can also withdraw their claim if they’ve received a check but have not yet deposited or cashed it. The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.”

Business Owners need to understand the common red flags IRS is seeing on claims:

• Too many quarters being claimed.
• Government orders that don’t qualify.
• Too many employees and wrong calculations.
• Business citing supply chain issues.
• Business claiming the ERC for too much of a tax period.
• Business didn’t pay wages or didn’t exist during eligibility period.
• Promoter says there’s nothing to lose.

IRS Reminds Business Owners that it is best to Pull Back on unprocessed claims

Employers who submitted claims ought to talk to a trusted tax professional about their eligibility amid misleading marketing around the credit. Quickly pursuing the claim withdrawal process and asking the IRS not to process a claim for any tax period that hasn’t been paid yet may be the best option for a business owner. Businesses need to consult their trusted tax professional in order to avoid potential IRS compliance action.

Are you a victim of an incorrect Employee Retention Credit claim?

Have you submitted an incorrect claim?

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