Many tax professionals are familiar with cases where clients were aggressively encouraged to apply for the Employee Retention Credit (ERC), resulting in false claims and penalties. To address this, the IRS has recently published FS-2023-24, temporarily halting the program and providing a procedure to withdraw claims without penalties.
The ERC, established under the CARES Act in response to the COVID-19 pandemic, offers a tax credit to reimburse” qualified wages” paid during periods of economic hardship or business closure in 2020 or 2021. Eligible employers, who experienced a full or partial suspension of business or a reduction in gross receipts due to COVID-19, can claim a tax credit of 50% or 70% of qualified wages, up to certain limits.
Unfortunately, the ERC has been subject to abuse, with ineligible and fraudulent claims made due to aggressive promotion by unscrupulous individuals. The IRS has acted by imposing a moratorium on new claims while continuing to process previously filed claims. Stricter compliance reviews have been implemented, lengthening the processing time.
To address the issue of claims already filed, the IRS has issued FS-2023-24, outlining a process for taxpayers to withdraw their ERC claims. Taxpayers who believe their claims were inappropriate should consult with a qualified tax attorney and follow the withdrawal process outlined by the IRS, which involves filing an amended Form 941.
It is important for taxpayers who may have filed an inappropriate ERC claim to refrain from cashing any checks and seek independent legal counsel for guidance on the best course of action. The withdrawal process offers relief for those who unknowingly fell victim to aggressive promoters or filed claims they believed were eligible.
By following the withdrawal process with the assistance of a qualified tax attorney, taxpayers can rectify their situation. We hope that the IRS will provide clear procedures for those who have already received the credit but have now realized their ineligibility, allowing them to return the funds through a settlement program.
The misuse of the ERC by unqualified claimants will likely result in numerous criminal investigations and civil penalty situations. It is crucial for affected taxpayers to act promptly and seek professional advice to navigate through this challenging situation.
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