The IRS has introduced a second opportunity for businesses to voluntarily correct claims related to the Employee Retention Credit (ERC). This program is open until November 22, 2024, and offers a chance to address potentially inaccurate claims without facing severe penalties, including fines, back interest, and even jail time. (The first repayment program ran from December 2023 – March 2024.)
The ERC was designed to support businesses that retained employees during the pandemic, offering substantial financial relief. However, many claims were submitted based on incorrect or misleading advice, leading to numerous audits, disallowances, and more than 25,000 disallowance letters to claimants. The IRS estimates that nearly 90% of claims contain some level of fraud, so if you think yours could be one of them, this is an opportunity to correct any mistakes and avoid or minimize potential audits, fines and even up to five years of jail time.
Key Indicators of Potential ERC Claim Errors
- Operational Status: If your business was fully operational and did not experience a notable drop in revenue, you may not have qualified for the ERC.
- Misinterpretation of Government Orders: Some businesses mistakenly believed that general pandemic hardships constituted a full or partial suspension of operations, but specific government orders are required for ERC eligibility.
- Wages of Family Members: Claims involving wages paid to family members are often ineligible or incorrectly calculated.
- Double-Counting Wages: Wages used for Paycheck Protection Program (PPP) loan forgiveness cannot be claimed again for the ERC.
- Active Employees: Large employers can only claim wages for employees who were not working. Including active employees’ wages can invalidate the claim.
Next Steps for Business Owners
- Thoroughly Review Your Claims: Ensure all aspects of your ERC claims comply with the IRS guidelines and accurately reflect eligible quarters and wages.
- Seek Professional Guidance: If you’re unsure about the accuracy of your ERC claims, reach out to us so we can review your claim and provide clarity and guidance.
- Consider the Voluntary Disclosure Program: If you suspect you may have claimed the ERC incorrectly, signing up for this program before the November deadline can help you avoid further penalties, interest, or legal consequences.
- Stay Informed: Tax regulations change all the time, and staying updated is essential. We will do our best to provide you with the latest information, but if you have specific questions, don’t hesitate to call us.
Taking proactive steps to review and correct ERC claims not only protects your business from financial and legal risks but also upholds your reputation and trustworthiness. If you need assistance, our team is here to help ensure compliance and peace of mind.