The Internal Revenue Service (IRS) is stepping up its efforts to combat questionable Employee Retention Credit (ERC) claims. As part of its ongoing efforts, the IRS has announced an initial round of disallowance letters aimed at entities that failed to meet basic criteria for the ERC. The intensified scrutiny follows misleading marketing campaigns that prompted the IRS to impose a moratorium on processing new ERC claims through at least the end of 2023. This measure is crucial to safeguard against fraudulent claims and protect businesses from penalties and interest arising from inaccurate submissions.

Dissecting the Disallowance Letters

The disallowance letters, known as Letter 105 C, Claim Disallowed, target two key problem areas identified by the IRS. The first category involves entities that did not exist during the eligibility period, which spans from March 13, 2020, to Dec. 31, 2021. Entities established after this date are not entitled to the ERC under current legislation. The second category pertains to entities that did not have paid employees during the eligibility period, rendering them ineligible for the credit. These letters serve to notify taxpayers of the disallowed claims and provide an opportunity to respond with supporting documentation or file an administrative appeal.

Protecting Taxpayers and IRS Resources

The disallowance letters play a crucial role in protecting both taxpayers and the IRS. By identifying ineligible claims before they are paid, the letters help ineligible taxpayers avoid audits, repayment, penalties, and interest. Additionally, they prevent incorrect refunds from going to ERC promoters and save IRS resources by disallowing incorrect credits before entering the audit process. The IRS emphasizes taxpayer rights and encourages those who disagree with the disallowance to provide supporting documentation or file an appeal.

Upcoming Voluntary Disclosure Program

To further address the issue of questionable payments, the IRS is set to unveil a separate voluntary disclosure program later this month. This program will provide an avenue for those who received dubious payments to proactively come forward, rectify any inaccuracies, and avoid potential future IRS action. Our team of experts is ready to assist you in navigating this program and ensuring compliance.

Withdrawal Option

Acknowledging the pressure and misinformation faced by small business owners, the IRS is continuing to accept and process requests to withdraw a taxpayer’s full ERC claim under a special withdrawal process. Taxpayers have until at least the end of the year to request a withdrawal if they have submitted an ERC claim that has not yet been paid, allowing them to avoid future repayment, interest, and penalties.

Conclusion

As the IRS expands its efforts to combat dubious ERC claims, it is crucial for taxpayers to stay informed and seek guidance from trusted tax professionals. Our knowledgeable team of experts is here to help you navigate the complexities of the ERC landscape, whether it’s an initial Employee Retention Credit claim, responding to disallowance letters, exploring the voluntary disclosure program, or considering the withdrawal option. Stay informed, stay compliant, and let our team assist you in making the right decisions for your business.