IRS ANNOUNCES SETTLEMENT PROGRAMS FOR ERC CONSIDER YOUR AUDIT RISK IN LATE DECEMBER 2023, THE IRS ANNOUNCED its Voluntary Disclosure Program for employers that claimed and received an Employee Retention Credit (ERC) refund but later determined they were not eligible. The Voluntary Disclosure Program follows the IRS’ announcement in October 2023 that it would allow employers with submitted—but not yet paid—ERC claims to withdraw their filings without penalty. The ERC & IRS Enforcement Sometimes called the Employee Retention Tax Credit (ERTC), the ERC is a complex, refundable tax credit intended for employers that continued paying employees during the COVID-19 pandemic when either (a) their operations were fully or partially suspended due to governmental orders, or (b) they experienced a significant decline in gross receipts as compared to 2019. The credit is available for both 2020 and 2021, but the credit limit is calculated differently each year, as follows: For 2020, the credit is equal to 50% of up to $10,000 of qualified wages (including health plan expenses) paid to employees from March 12, 2020, through Dec. 31, 2020 (the maximum credit being $5,000 per employee in 2020). For 2021, the credit is equal to 70% of up to $10,000 of qualified wages (including health plan expenses) paid to employees in any quarter from Jan. 1, 2021, through Sept. 30, 20211 (the maximum credit being $7,000 per employee per quarter). Aggressive ERC promoters published false and misleading advertisements regarding the eligibility requirements for the ERC, leading many employers to believe they were eligible when they were not. (In fact, some ERC firms alleged that all employers were eligible. This is not the case.) As a result, the IRS has announced its intention to “step up” its enforcement actions involving ERC claims. For example, in early December, the IRS mailed 20,000 disallowance letters and has already begun other audit and enforcement actions. In the absence of the IRS’ withdrawal program or Voluntary Disclosure Program, employers that have received ERC refunds but are not, in fact, eligible, could face enforcement action from the IRS for recovery of the full amount of the ERC refund, plus interest and a myriad of penalties. We anticipate the IRS will take a hardline approach on its enforcement action for these claims, especially in light of its announcement of these programs. Withdrawal Program Under the withdrawal program, the IRS will accept an employer’s request to withdraw its ERC claim under certain circumstances. The withdrawal program is for employers with an ERC claim that has been filed but not yet paid by the IRS (or those that have received a check but have not yet cashed or deposited it). If an employer requests to withdraw its claim, it will be treated as though it were never filed, and the IRS will not impose penalties or interest. BY JESSE D. SITZ & MORGAN L. KREISER, BAIRD HOLM LLP 12 Nebraska CPA
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