The Employee Retention Credit (“ERC” or the “Credit”) was a lifeline for businesses navigating the challenges of the COVID-19 pandemic and its aftermath. ERC refund claims for 2020 are set to expire on April 15, 2024, and claims for 2021 are set to expire on April 15, 2025. However, the popular and plagued credit may expire much earlier than originally planned amidst a perfect storm of fraudulent claims, lack of IRS resources, and other tax legislative priorities in need of funding.

Have Questions? Call us for Your consultation.

Fraudulent Claims

On September 14, 2023,  the IRS took a decisive step by pausing the processing of new claims due to concerns about fraudulent activities by third-party promoters. In addition, on October 19, 2023, the IRS announced its withdrawal program where ineligible taxpayers who have not received or otherwise negotiated ERC-related refund checks are able to withdraw refund claims that they are not entitled to. On December 21, 2023, the IRS announced its ERC voluntary disclosure program where taxpayers who have deposited checks could voluntarily give back 80 percent of the refund and protect themselves from IRS examinations, penalty assessments, and accruing interest.   

IRS Resources 

On January 10, 2024, IRS Commissioner Danny Werfel met with the Senate Finance Committee to provide an update on the ERC moratorium and compliance issues surrounding the Credit. Werfel explained that the IRS is converting the returns to a digital format to better analyze and identify sources of ineligibility. However, as of December 9, 2023, the IRS still had 1,057,000 unprocessed Forms 941-X to review and analyze, not including any returns that have already been paid.

Legislation

According to NBC News,  Senate Finance Committee Chairman Ron Wyden (D-Ore.) and House Ways and Means Committee Chairman Jason T. Smith (R-Mo) are working together to draft new tax legislation to expand the child tax credit and revive the expired treatment of certain research and development expenditures under 26 USC §174. Senator Wyden stated that he is aiming to complete this deal by January 29, 2023, which coincides with the official start of filing season for tax year 2023. However, to fund these new tax benefits, lawmakers may look to prematurely end ERC shortly after the enactment of the legislation

What Should Businesses Do?

First, if an employer is concerned about any ERC refund claims it has filed, it should contact a tax professional to determine if the claims should be withdrawn or the funds should be paid back via the voluntary disclosure program. 

Second, if an employer has not filed ERC refund claims and believes it’s possible the business may be an eligible employer, the business should act immediately to evaluate its eligibility with a trusted tax professional. If eligible, that employer should ensure all tax returns with qualified wages are  filed via certified mail as soon as possible. 

You can contact us via our website or by calling our tax attorneys at (410) 862-3872.

Footnotes

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ERC Alert: Is an Untimely End to the Employee Retention Credit on the Horizon?

Published on
January 12, 2024
Authors
Heather Posey
Enrolled Agent
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The Employee Retention Credit (“ERC” or the “Credit”) was a lifeline for businesses navigating the challenges of the COVID-19 pandemic and its aftermath. ERC refund claims for 2020 are set to expire on April 15, 2024, and claims for 2021 are set to expire on April 15, 2025. However, the popular and plagued credit may expire much earlier than originally planned amidst a perfect storm of fraudulent claims, lack of IRS resources, and other tax legislative priorities in need of funding.

Have Questions? Call Our Team Today.

Fraudulent Claims

On September 14, 2023,  the IRS took a decisive step by pausing the processing of new claims due to concerns about fraudulent activities by third-party promoters. In addition, on October 19, 2023, the IRS announced its withdrawal program where ineligible taxpayers who have not received or otherwise negotiated ERC-related refund checks are able to withdraw refund claims that they are not entitled to. On December 21, 2023, the IRS announced its ERC voluntary disclosure program where taxpayers who have deposited checks could voluntarily give back 80 percent of the refund and protect themselves from IRS examinations, penalty assessments, and accruing interest.   

IRS Resources 

On January 10, 2024, IRS Commissioner Danny Werfel met with the Senate Finance Committee to provide an update on the ERC moratorium and compliance issues surrounding the Credit. Werfel explained that the IRS is converting the returns to a digital format to better analyze and identify sources of ineligibility. However, as of December 9, 2023, the IRS still had 1,057,000 unprocessed Forms 941-X to review and analyze, not including any returns that have already been paid.

Legislation

According to NBC News,  Senate Finance Committee Chairman Ron Wyden (D-Ore.) and House Ways and Means Committee Chairman Jason T. Smith (R-Mo) are working together to draft new tax legislation to expand the child tax credit and revive the expired treatment of certain research and development expenditures under 26 USC §174. Senator Wyden stated that he is aiming to complete this deal by January 29, 2023, which coincides with the official start of filing season for tax year 2023. However, to fund these new tax benefits, lawmakers may look to prematurely end ERC shortly after the enactment of the legislation

What Should Businesses Do?

First, if an employer is concerned about any ERC refund claims it has filed, it should contact a tax professional to determine if the claims should be withdrawn or the funds should be paid back via the voluntary disclosure program. 

Second, if an employer has not filed ERC refund claims and believes it’s possible the business may be an eligible employer, the business should act immediately to evaluate its eligibility with a trusted tax professional. If eligible, that employer should ensure all tax returns with qualified wages are  filed via certified mail as soon as possible. 

You can contact us via our website or by calling our tax attorneys at (410) 862-3872.

Footnotes