Compliance Stuff

While the One Big Beautiful Bill Act made headlines for tax and spending cuts, it also contains significant changes to the federal government’s treatment of COVID era Employee Retention Tax Credit (ERC) claims — many of which are still pending with the IRS. Taxpayers and ERC advisers need to understand these changes, and how they could impact pending claims and potential liability. Congress designed the ERC to encourage businesses to retain employees during the COVID-19 pandemic. The CARES Act allowed certain employers to receive a tax credit for the first quarter of 2020 through the second quarter of 2021 . The American Rescue Plan (ARPA), passed in March 2021, extended the ERC (with certain restrictions) through the fourth quarter of 2021. The ERC’s complexity, combined with widespread marketing by promoters, created a backlog of questionable claims that the IRS is still struggling to review. As of August 2024, the IRS had disallowed 28,000 claims with an estimated worth of approxim...

On August 15, 2024, the Internal Revenue Service (IRS) launched a second Employee Retention Credit (ERC) Voluntary Disclosure Program for employers to correct any mistakes related to their ERC claims. The ERC, introduced by the Coronavirus Aid, Relief, and Economic Security Act, was designed to help businesses and tax-exempt organizations that kept paying employees during the COVID-19 pandemic, even if they had to shut down or reduce operations due to government orders, saw a significant drop in revenue, or were recovery startups during the eligible periods. This new program provides participants another chance to fix any errors in such claims. The IRS has found that the ERC has become quite complex and significantly vulnerable to fraud . This issue led the agency to stop processing ERC claims entirely on September 14, 2023 . The IRS paused the voluntary disclosure program on March 22, 2024, to address the growing backlog of unprocessed claims. The recent announcement reflects the IRS...

  The Internal Revenue Service (IRS) recently issued a   news release   identifying five new signs that a business’s Employee Retention Tax Credit (ERC) may be incorrect. It has also begun issuing a third round of letters denying ERC claims. New compliance initiatives are coming and criminal investigations of ERC claims are on the rise, with the government winning cases that go to trial. For background, the ERC is a legitimate, refundable tax credit designed to help businesses that continued to pay employees while they were shut down due to the COVID-19 pandemic or that experienced a significant decline in gross receipts in 2020 and 2021. While Congress designed the ERC with the laudable goal of helping businesses survive the pandemic by encouraging them to keep employees on their payrolls, ERC fraud has run rampant and unscrupulous promoters have pushed businesses that do not qualify for the credit to file improper ERC claims . For over two years, the IRS has engaged in...