The Internal Revenue Service (IRS) has doubled down on small business owners that it claims took illegal advantage of a potential tax savings opportunity. The federal agency states that businesses throughout the country fraudulently claimed the Employee Retention Credit (ERC).
If they can build a case against these business owners, the IRS could hold the small businesses accountable for tax repayments and hefty penalties.
Why the focus on the ERC?
The ERC provided relief to small businesses during the pandemic. Those who suffered from serious decline in business could use this credit to provide wages and keep valuable workers. Unfortunately, the credit was relatively easy to claim even though eligibility requirements were difficult to meet.
Not surprisingly, this was a recipe for disaster.
Since the requirements were not easy to navigate it is likely small business owners believed third party tax representatives who claimed the business qualified for the credit, only to later realize they did not meet all the criteria.
What are the requirements?
The credit is generally available to those who meet the following criteria:
- Timing. First, the wages in question must be paid between March 13, 2020, and December 31, 2021.
- Declining business. The business must have suffered a decline in business connected to pandemic-related government-ordered shutdowns or stay at home orders or had a decline in gross receipts the first three quarters of 2021 or a significant decline in 2020.
- Qualifying as a recovery startup business. Businesses that opened operations during the pandemic can also qualify.
It is also important to note that PPP loan forgiveness does not impact availability of this credit. A business owner could potentially qualify for both.
What if I used a third party to help file my taxes?
There are reports of unscrupulous third-party tax filing businesses that provided false information regarding ERC eligibility to small business owners. Unfortunately, the business owner themselves are likely responsible for their tax filings — even if done under the advice of these alleged experts. This means that you could be on the hook. Ultimately, the IRS can argue that each taxpayer is responsible for their tax filings.
You can reduce the risk of falling victim to such practices by avoiding using tax services from those who pressure you into taking credits and do not ask for paperwork to verify the claim.
What if I get notification of a federal tax audit?
Those who receive a mailing from the IRS of a tax audit are wise to take the matter seriously. These notifications often come with a deadline, so it is important to take prompt action. The attorneys at Goldburd McCone LLP are experienced with small business audits and can advocate for your rights — better ensuring a more favorable outcome.