Small business owners are the backbone of our economy. They balance not just providing a valuable service or good to their communities but also the demands of business ownership — the nitty gritty of navigating administrative tasks and making sure the business operates within the bounds of local regulations all while ensuring they are in full compliance with applicable tax laws.
This is no easy feat and even the most experienced of business owners can make a mistake. Unfortunately, there are some mistakes that are more costly than others. One that is currently a top focus for the Internal Revenue Service (IRS) is use of the Employee Retention Credit (ERC).
As noted in a previous post, tens of thousands of business owners throughout the country have received mailings from the IRS claiming they wrongly applied for this credit. In some cases, these claims may rise to the level of allegations of tax fraud. Business owners who find themselves in this situation likely have many questions. This post will focus on providing a basic understanding of how we got into this mess. Future posts will delve into options for getting out of it.
Unveiling the credit
It all began back in 2020 when Congress introduced the ERC as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The credit offered a financial lifeline for small business owners who suffered financial losses during the COVID-19 pandemic.
Complications
In the months following its unveiling, the IRS released multiple notices that attempted to clarify eligibility for the credit. The rules are complex, and some of these notices were more than a hundred pages long.
The error
Business owners were left to understand and apply the rules, checking to see if they could grab hold of this lifeline and keep their doors open during difficult financial times. The IRS claims this led to many small business owners erroneously applying for the tax credit.
Some may have thought they qualified after reviewing the rules, others may have been misled by unscrupulous actors. Shady operations targeted small business owners and, for a small fee, would help the business owner get large tax savings. Unfortunately, this was often through fraudulently claiming that the business qualified for the ERC. Although the IRS is aware of these happenings, the fact is the agency may still attempt to hold small business owners accountable for the mistake.
Current IRS actions
As noted above, the IRS has sent notifications to small business owners. The agency has also stopped processing new claims. Business owners are wise to review claims to make sure they met qualification requirements.
Thankfully, you do not have to go through this process alone. The attorneys at Goldburd McCone can provide assistance and advocate for your interests, better ensuring a more favorable outcome.