Contrary to headlines making rounds in the past weeks – ERC has NOT been eliminated. The IRS moratorium is for ‘processing new claims’ for this quarter, i.e., until 31st December 2023. It doesn’t mean ERC is shutting down or the IRS is refusing to pay refunds against valid claims now or in the future. In fact, the IRS is urging businesses that have legitimate claims to continue to file, it’s just asking that every business review with a trusted tax advisor and not with a promoter that sprung up during the pandemic.
This change was explicitly put in place to protect honest taxpayers. The IRS has a backlog of more than 600,000 ERC claims to process as well and this gives them an opportunity to catchup.
Intent of the Change
The Employee Retention Credit was designed for businesses that retained employees during the pandemic while –
- Their operations were disrupted due to government orders.
- They experienced a significant revenue decline.
For the past two years, this powerful tax credit provided a much-needed stimulus relief to businesses, especially small and mid-sized businesses that faced the brunt of the pandemic.
Unfortunately, the IRS was routinely finding volumes of unsubstantiated claims originating from ERC pop-up shops that opened during the pandemic and started marketing aggressively “easy”, “risk-free”, and “instant” ERC qualification to unsuspecting businesses.
This is an issue that many industry leaders have been raising about aggressive promoters for many months now. In his Forbes article, Dean Zerbe, former Senior Counsel to the Senate Finance Committee and National Managing Director at alliantgroup, explicitly stated, “Let’s be honest – when they are doing TV ads for a tax benefit…watch out.”
It needs to be made clear again, combatting these ERC promoters is the stated purpose of this change, not to stop ERC claims for businesses that have a legitimate basis.
What Exactly Does the IRS Memo Say?
- What’s stopping and what’s not – With the IRS’ backlog, functionally nothing is changing. It would take the IRS about four to six months to get to a new filing. The IRS memo is essentially stating this fact as a policy change. This should not impact a business’s decision to file for this credit. It also does not change eligibility to receive refunds. Any claim filed during the interim period will be processed.
- What is the IRS asking business owners to do? – In the memo, the IRS has urged businesses to exercise caution and get their claims evaluated only by trusted tax professionals familiar with complex tax incentives. In contrast, the IRS is asking business owners to be wary of promoters that popped up during the pandemic.
What Can a Business Do?
- Not claimed but considering – Businesses eligible for this tax credit should absolutely seek out a trusted tax professional to file. This tax credit was meant to help businesses and will continue to do so. However, in light of the memo, businesses must exercise caution and get their claims reviewed by credible tax professionals who deeply understand how ERC works.
A simple verification check–research if the tax consultant has worked in tax credits and incentives for a long time or was just established during the pandemic.
- Claimed but not received refunds – The IRS moratorium has given a unique opportunity to businesses who have claimed but haven’t yet received the refund check. They can take this time to re-evaluate their claim and amend it. Again, they should reach out to a credible tax professional.
- Already received ERC Refund – If a business has already received the refund but now believes it was in error, the IRS will soon release details on its settlement program to allow businesses to avoid penalties and ensure future compliance.
The Importance of Finding the Right Tax Provider
Tax credits and incentives like the ERC are designed to help and empower small businesses. Yet, the aggressive marketing tactics and targeted advertisements used by fly-by-night providers are a firm reminder that there are always those looking to profit from confusion, and businesses must be wary of them.
At alliantgroup, we have helped twenty-four thousand small businesses earn this lucrative credit in the past two years. At the same time, we have disqualified nearly ten thousand claims because we strictly follow the qualification criteria prescribed by the IRS. With two decades of experience in delivering tax credits and incentives, we will continue to spread awareness and empower small businesses without compromising the integrity of the process.
If this IRS moratorium is making you apprehensive about filing or you are having second thoughts about your claim, you can always reach out to us here.