IRS Considers Guidance for Employee Retention Tax Credit

Erin M. Collins, National Taxpayer Attorney.

Source: IRS

After a flood of business returns claiming a pandemic-era tax credit, the IRS is weighing guidance for those who improperly claimed the tax break.

The Employee Retention Loan was created to support small businesses during the Covid-19 pandemic. There is still time to amend tax returns and claim the credit, which is up to $5,000 per employee in 2020 or $28,000 per employee in 2021.

Experts say the opportunity has sparked a wave of specialty firms falsely promising business owners that they would qualify for the complicated tax break.

“I really think people were deceived,” national taxpayer advocate Erin Collins said this month at the annual conference of the American Institute of Certified Public Accountants. People have claimed the credit and may already have received a refund, she added.

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The IRS warned business owners about “third parties” promoting the employee retention credit in October and recently renewed its warning by adding the issue to its Annual list from Dirty Dozen tax fraud for 2023.

According to the latest data, as of March 3, just over 866,000 companies applied for and received employee retention credits totaling over $152.6 billion IRS data book.

IRS is working on ERC credit guidelines

There is currently a backlog of Forms 941-X, known as the Adjusted Quarterly Employer Federal Tax Return, that companies must use to amend their tax returns to claim the 2020 or 2021 Employee Retention Credit. As of June 14, about 537,000 941-Xs forms had not been processed, according to the IRS.

Collins said the IRS is working on guidance for filers who may have claimed the credit in error.

“I think now there’s some buyer’s remorse,” she told CNBC in early June, noting that ineligible applicants should start thinking about “ways to undo this” if they find out they are not qualified.

The most important thing is to move forward first.

Rosemary Sereti

Managing Director of Deloitte Tax

“The most important thing is to come forward first,” said Rosemary Sereti, managing director of Deloitte Tax and a former IRS executive, when speaking to CNBC about employee retention credit errors. “Once [the IRS] Come to you, it’s a little too late.

Of course, the current Form 941-X backlog also includes many “legitimate claims” for the employee retention credit that have been delayed as the IRS reviews the filings, Collins said. The IRS website says The agency is working on inventory at two locations with “trained staff” to review possible Covid-19 credits.

Possible IRS penalty for falsely claiming ERC

If you have wrongly claimed the employee retention credit, you may be subject to a penalty IRS penalty, according to Debra Estrem, managing director of personal property litigation at Deloitte Tax, who also worked in the IRS Office of Chief Counsel.

She said you could be subject to a “mistaken claim for a refund or credit.” Penalty“, which is typically 20% of the overclaimed amount. However, the type of penalty depends on whether the error occurred on the original filing or an amended tax return.

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