Goldburd | Goldburd McCone LLP

For nationwide tax guidance, call:
212-235-1537 or toll-free at 866-712-9505.

Goldburd | Goldburd McCone LLP

For nationwide tax guidance, call: 212-302-9400 or toll-free at 844-653-2873.

Serving Individual And Corporate Tax Clients Nationwide From Our New York, New Jersey, Florida And California Offices

Steven Goldburd and Benjamin A Goldburd

Since 1983, our tax firm has skillfully represented individuals and corporations across the United States and around the globe from our offices in New York, New Jersey, California and Florida.

What do I do if I got an ERC disallowance letter from the IRS?

On Behalf of | Jul 2, 2024 | Business Tax

It seems that the mail these days holds two things: bills and marketing materials. For the truly unlucky, the mail may also contain a letter from the Internal Revenue Service (IRS). Although it may be tempting to ignore the letter or pretend it does not exist, a failure to review the information is not in your best interest. These mailings often have deadlines and a failure to act within the given timeline can mean you lose the ability to fight back.

As a result, it is important to take that first step — open the mailing.

Over 20,000 taxpayers throughout the country who open this mail from the IRS with bad news about an attempt to claim the Employee Retention Credit (ERC). This tax credit served as a lifeline for business owners, allowing them to recoup funds lost during the COVID-19 pandemic. Although likely beneficial for the economy, the IRS is clawing back some of these funds.

Why is the IRS reclaiming and denying the ERC?

The agency notes that shady actors promised small business owners massive tax savings by using the ERC. Unfortunately, these claims were often misguided. As a result, many small business owners unwittingly applied for the tax credit even though they did not meet the qualifications.

What is the IRS looking for?

The IRS is paying close attention to two main things:

  1. The first category is the timing of business operations. The agency is checking to make sure that the business paid wages between March 13 of 2020 and December 31 of 2021.
  2. The agency is also checking to make sure the business actually paid wages to employees.

Businesses that do not meet these criteria likely do not qualify for the ERC.

What if I filed but now realize I did not qualify?

First, know that you are not alone. The IRS recognizes that unscrupulous actors were pushing businesses to file for this credit, claiming they could help businesses that pay a small fee for their services get hefty tax savings.

Could I go to prison?

Although the agency recognizes that unscrupulous players were misleading honest business owners, but there is still the possibility that the IRS will hold the owner accountable for the mistake. The IRS is clear that in some cases it will pursue criminal charges. The extent of penalties varies depending on the details of the allegations and could potentially include prison time.

Those who are uncertain if their filing qualified are wise to seek legal guidance. The attorneys at Goldburd McCone are experienced in these types of dealings with the IRS and can discuss the issue as well as options that apply to your specific situation.