In its short life, the Employee Retention Credit (ERC) has gone through several iterations, driven by four separate statutes and even more administrative guidance. The IRS page covering ERC guidance links to over 50 unique resources and pieces of guidance that may pertain to ERC claims. With this complex framework, promoters aggressively sold ERC refunds, which subsequently led to intense IRS scrutiny and enforcement.
As ERC claims have unfolded, a complicated framework fraught with potential missteps evolved. Taxpayers with pending or refunded ERC claims should therefore evaluate their claims and consider participating in the IRS’s withdrawal or voluntary programs. The deadline for the latter’s program is March 22. Companies that opt not to participate should ensure they have adequate supporting information which documents previously filed claims.
Despite being slowed by an IRS moratorium on processing ERC claims, queries from taxpayers remain. Employers currently seek greater certainty regarding the strength of an ERC claim prior to filing and are increasingly utilizing tax attorneys for validating existing claims. It is also worth noting that advice linked to tax-related exposure for past ERC claims is more common than advice for new ones.
Even though refunds have slowed, employers believing they have complied with all ERC requirements continue to chase refunds. This has inspired lawsuits against the IRS by employers to force payment of their claims. In Texas, one employer had filed ERC claims covering three-quarters of 2021 but was neither refunded nor given a notice of disallowance, a case that is pending.
The IRS itself has offered opportunities to employers who have forfeited claims; the IRS has suggested a withdrawal program and a voluntary disclosure program.
With the aggressive pursuit by the IRS, taxpayers with non-compliant ERC claims face significant exposure including penalties underCircular 230 sanctions, payroll and other federal tax penalties, and obligations under Notice 2021-20. Therefore, it is recommended that taxpayers take a close review of their supporting documentation for their ERC claims to ensure compliance with all requirements.
According to Ellen McElroy and Kristen Martin from Eversheds Sutherland, taxpayers with pending or refunded ERC claims should consider a third-party evaluation of their claims to identify potential audit exposure and to aid the deciding process on whether to participate in the withdrawal or voluntary disclosure programs.