The COVID-19 pandemic hit businesses hard. In an effort to reduce the risk that the pandemic would result in business closures and bottom out our economy, the government approved various federal programs. These ranged from loans and funding opportunities to tax credits.
The Internal Revenue Service (IRS) has chosen to focus its efforts in on one such credit, the Employee Retention Credit.
Why is the IRS focusing on the ERC?
Thus far, over 2.5 million business owners filed ERC claims with the IRS. The IRS has noted a recent surge in claims. The agency claims the surge is the result of two factors:
- Business owners are about to lose their chance to get this credit; and
- Unscrupulous players are running shady tax schemes.
These players encourage businesses to take advantage of the credit when it may not apply. The unscrupulous get the payment for helping with tax filings and then likely disappear while the business owner is left to deal with any potential fallout.
To help avoid becoming a victim, the IRS has warned business owners to watch out for the scam. Common red flags include a high upfront fee, aggressive marketing practices, and failing to explain key details about qualifications.
How can business owners still get the ERC? Wasn’t it for 2020 and 2021?
Yes, the credit was available for tax years that have already passed. Business owners can still take advantage of the credit by filing an amended tax return, but time is running out. A recent piece in Forbes dives into the issue, noting businesses have until April 15, 2024 to file for 2020 and April 15, 2025 to file an amended return for the credit for the 2021 tax year.
What happens if the IRS claims I should not have gotten the ERC?
The IRS may require repayment. Depending on the allegations, the IRS could also claim tax fraud or choose to pursue other criminal penalties.
Whether facing an audit connected to the ERC or already the subject of penalties, it is wise to seek legal counsel. The rules are complex. Defenses to the allegations are available. The attorneys at Goldburd McCone have experience with these types of cases. They can review your situation and provide legal guidance to help better ensure you understand your options while working to protect your interests.