Recent reports from the IRS have indicated a crackdown on businesses that may have wrongfully claimed the Employee Retention Credit (ERC). The IRS has revealed that there are currently nine open investigations and 123 under review regarding the ERC as of January 25.
The IRS is urging individuals who may have wrongly availed themselves of the ERC to come forward before the Voluntary Disclosure Program closes on March 22. Those who voluntarily disclose their erroneous claims will be required to provide the name of the promoter who encouraged them to take the credits.
Additionally, the IRS has introduced a voluntary withdrawal program for those with unprocessed ERC claims. It has been reported that over $167 million from pending applicants was withdrawn through mid-January.
Thousands of letters have been sent out to taxpayers notifying them of disallowed ERC claims, particularly those that failed to meet the basic criteria for the program, such as being a business with employees on the payroll.
The IRS has also announced plans to send letters to thousands of ERC recipients who may have claimed an erroneous or excessive credit. Recipients will be informed that the IRS will recapture the erroneously claimed payments through normal tax assessment and collection procedures.
It is important to note that the IRS is focusing on tax years 2020 and 2021, with impending letters for the latter expected to be sent out this spring as the statute of limitations for 2020 draws near in April.
Last September, the IRS imposed a moratorium on ERC claims, and as of now, there is no official announcement regarding when this will be lifted.
These developments have sparked concern among businesses and individuals who may have been approached by promoters to claim the ERC. One anonymous commenter expressed that their small business was approached by numerous companies to apply for the credit, but after thorough research, they determined that it did not apply to them, and as a result, they did not claim any funds. They called for the IRS to thoroughly investigate those who did claim the credit.
Another commenter suggested that law firms and doctors who received substantial amounts should be among the first to be scrutinized.
