In a recent podcast episode, Mary Wood of Meadows Collier discussed updates on the employee retention credit (ERC) with Tax Notes investigations editor Lauren Loricchio. Wood explained that the ERC was meant to encourage employers to retain employees during the economic challenges of the COVID-19 pandemic. However, there has been a significant increase in claims, leading to concerns about fraudulent claims. Many companies have been aggressively marketing the credit to taxpayers, causing a backlog of claims and prompting the IRS to issue a moratorium on new claims.
The moratorium, initially set to potentially expire at the end of 2023, has been extended as the IRS continues to review claims for viability. This has left many legitimate claimants waiting for their refunds. As a result, some taxpayers have started filing lawsuits in federal district court to push for action on their claims. Wood’s firm has already filed a suit, and she anticipates more suits to be filed as the backlog persists and claimants become more frustrated with the lack of progress.
Wood also discussed the Employee Retention Credit Voluntary Disclosure Program, which recently closed. This program allowed taxpayers who believed they had issues with their ERC filings to submit corrections and pay back 80 percent of the amount refunded with no penalties or interest. However, the program did not offer the same criminal protections as the traditional voluntary disclosure program, making it potentially less attractive for those with criminal exposure. Wood suggested that reopening the program could be beneficial for the IRS to gather more information on fraudulent claim promoters.
Regarding pending legislation such as the Tax Relief for American Families and Workers Act of 2024, which would sunset the ERC early and impose stiffer penalties on promoters of the credit, Wood advised businesses with legitimate claims to file them despite uncertainties about the deadline. She emphasized the importance of thoroughly reviewing eligibility requirements and ensuring all necessary documentation is in order. Wood also highlighted the IRS’s aggressive approach to combating fraud related to the ERC, including civil exams, investigations into promoters, and potential criminal prosecutions.
In conclusion, Wood encouraged businesses with legitimate claims to take necessary steps to protect themselves, including seeking professional advice, considering voluntary disclosure programs if needed, and preparing for potential IRS examinations. She stressed the importance of being proactive in addressing any issues with ERC claims, especially in light of the ongoing backlog and uncertainty surrounding pending legislation. Businesses that have submitted claims, whether before or after the moratorium, should be prepared to provide comprehensive documentation to support their positions as the IRS continues to scrutinize claims for accuracy and eligibility.
