Tim’s Tax News on the Tenth – December 2023

IRS announced that as part of its continuing efforts to combat dubious Employee Retention Credit (“ERC”) claims, it is sending an initial round of more than 20,000 letters (Letter 105 C, Claim Disallowed) to taxpayers notifying them of disallowed ERC claims. IRS is disallowing claims to entities that did not exist or did not have paid employees during the period of eligibility to prevent improper ERC payments from being made to ineligible entities.

The IRS is sending the letters out as it continues to increase scrutiny of ERC claims in response to misleading marketing campaigns that have targeted small businesses and other organizations. The IRS mailing is only a part of an expanded compliance effort that includes a special withdrawal program for those with pending claims who realize they may have filed an inaccurate tax return. Later this month, a separate voluntary disclosure program will be unveiled allowing those who received questionable payments to come in and avoid future IRS action.

This initial round of letters is being sent to taxpayers that the IRS determined did not meet the basic criteria for the credit. This group of letters will cover taxpayers ineligible for the ERC either because their entity did not exist or did not have employees for the time period when the credit was claimed.

Concerning this first round of letters, IRS Commissioner Danny Werfel said “The action we are taking today is part of an initial set of steps in our compliance work in this area, and more letters will be going out in the near future, including both disallowance letters and letters seeking the return of funds erroneously claimed and received.”

“As we continue our audit and criminal investigation work involving the Employee Retention Credits, we continue to urge people who submitted a claim to review the rules with a trusted tax professional. If they filed an inaccurate claim, we urge them to consider withdrawing their pending claim or use the upcoming disclosure program to repay improper refunds to avoid future action.”

The steps above are a reflection of the IRS being overwhelmed by the number of ERC claims, in fact on September 14, 2023 the IRS announced a moratorium on processing new ERC Claims through at least the end of calendar 2023. The IRS noted that enhanced compliance reviews of existing claims submitted before the moratorium are critical to protect against fraud and also to protect businesses and organizations from facing penalties or interest payments stemming from bad claims pushed by promoters.

When properly claimed, the ERC is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were either fully or partially suspended due to a government order or had a significant decline in gross receipts during the eligibility periods.

In July, the IRS said it was shifting its focus to review ERC claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS has hundreds of criminal cases being worked, and thousands of ERC claims have been referred for audit.

If you would like more details, please do not hesitate to call our office. Our office has been successful in helping taxpayers with IRS and IDOR collection problems for over 28 years. If you have a tax or debt problem, please contact me at 847-705-9698 or thughes@lavellelaw.com and find out how we can help you.

Are you receiving the Lavelle Law eNewsletter? Sign up today and receive valuable updates and perspectives on a wide range of legal issues: http://goo.gl/pjeJkm