What is the IRS warning about ERC?

The IRS Warning on Employee Retention Credit (ERC) Claims: What You Need to Know

Introduction

The Employee Retention Credit (ERC) was a lifeline for many businesses during the COVID-19 pandemic, but, it’s also become a source of concern for the IRS. So, what’s the deal? The IRS is warning about questionable ERC claims, and if you’ve claimed the credit, you need to pay attention.

The ERC: A Quick Refresher

Before we dive into the IRS warning, let’s quickly recap what the ERC is. The ERC was a refundable tax credit designed to encourage businesses to keep employees on their payroll during the pandemic. Eligible employers could claim a credit for a portion of qualified wages paid to employees between March 13, 2020, and September 30, 2021.

The IRS Warning: Seven Red Flags

Now, the IRS has identified seven red flags that could indicate an ERC claim is questionable:

1. Too Many Quarters Being Claimed

Some promoters have urged employers to claim the ERC for all quarters, but, qualifying for all quarters is uncommon. If you’ve claimed the credit for every single quarter, that could raise eyebrows.

2. Government Orders That Don’t Qualify

Certain promoters have claimed that any government order related to COVID-19 qualifies an employer for the ERC, but, that’s not true. The order must have specifically impacted your business operations.

3. Too Many Employees and Wrong Calculations

Be cautious about claiming the ERC for all wages paid to every employee. The rules vary based on your business size and the specific circumstances.

4. Business Citing Supply Chain Issues

A supply chain disruption alone doesn’t qualify you for the ERC. There must be a more direct impact on your operations.

Christine Twomey

2024-03-21

Just had my Divorce case settled 2 months ago after having a horrible experience with another firm. I couldn’t be happier with Claire Banks and Elizabeth Garvey with their outstanding professionalism in doing so with Spodek Law Group. Any time I needed questions answered they were always prompt in doing so with all my uncertainties after 30 yrs of marriage.I feel from the bottom of my heart you will NOT be disappointed with either one. Thanks a million.

Brendan huisman

2024-03-18

Alex Zhik contacted me almost immediately when I reached out to Spodek for a consultation and was able to effectively communicate the path forward/consequences of my legal issue. I immediately agreed to hire Alex for his services and did not regret my choice. He was able to cover my case in court (with 1 day notice) and not only was he able to push my case down, he carefully negotiated a dismissal of the charge altogether. I highly recommend Spodek, and more specifically, Alex Zhik for all of your legal issues. Thanks guys!

Guerline Menard

2024-03-18

Thanks again Spodek law firm, particularly Esq Claire Banks who stood right there with us up to the finish line. Attached photos taken right outside of the court building and the smile on our faces represented victory, a breath of fresh air and satisfaction. We are very happy that this is over and we can move on with our lives. Thanks Spodek law 🙏🏼🙏🏼🙏🏼🙏🏼🙌🏼❤️

Keisha Parris

2024-03-15

Believe every single review here about Alex Z!! From our initial consultation, it was evident that Alex possessed a profound understanding of criminal law and a fierce dedication to his clients rights. Throughout the entirety of my case, Alex exhibited unparalleled professionalism and unwavering commitment. What sets Alex apart is not only his legal expertise but also his genuine compassion for his clients. He took the time to thoroughly explain my case, alleviating any concerns I had along the way. His exact words were “I’m not worried about it”. His unwavering support and guidance were invaluable throughout the entire process. I am immensely grateful for Alex's exceptional legal representation and wholeheartedly recommend his services to anyone in need of a skilled criminal defense attorney. Alex Z is not just a lawyer; he is a beacon of hope for those navigating the complexities of the legal system. If you find yourself in need of a dedicated and competent legal advocate, look no further than Alex Z.

Taïko Beauty

2024-03-15

I don’t know where to start, I can write a novel about this firm, but one thing I will say is that having my best interest was their main priority since the beginning of my case which was back in Winter 2019. Miss Claire Banks, one of the best Attorneys in the firm represented me very well and was very professional, respectful, and truthful. Not once did she leave me in the dark, in fact she presented all options and routes that could possibly be considered for my case and she reinsured me that no matter what I decided to do, her and the team will have my back and that’s exactly what happened. Not only will I be liberated from this case, also, I will enjoy my freedom and continue to be a mother to my first born son and will have no restrictions with accomplishing my goals in life. Now that’s what I call victory!! I thank the Lord, My mother, Claire, and the Spodek team for standing by me and fighting with me. Words can’t describe how grateful I am to have the opportunity to work with this team. I’m very satisfied, very pleased with their performance, their hard work, and their diligence. Thank you team!

Anthony Williams

2024-03-12

Hey, how you guys doing? Good afternoon my name is Anthony Williams I just want to give a great shout out to the team of. Spodek law group. It is such a honor to use them and to use their assistance through this whole case from start to finish. They did everything that they said they was gonna do and if it ever comes down to it, if I ever have to use them again, hands-down they will be the first law office at the top of my list, thank you guys so much. It was a pleasure having you guys by my side so if you guys ever need them, do not hesitate to pick up the phone and give them a call.

Loveth Okpedo

2024-03-12

Very professional, very transparent, over all a great experience

Bee L

2024-02-28

Amazing experience with Spodek! Very professional lawyers who take your case seriously. They treated me with respect, were always available, and answered any and all questions. They were able to help me very successfully and removed a huge stress. Highly recommend.

divesh patel

2024-02-24

I can't recommend Alex Zhik and Spodek Law Firm highly enough for their exceptional legal representation and personal mentorship. From the moment I engaged their services in October 2022, Alex took the time to understand my case thoroughly and provided guidance every step of the way. Alex's dedication to my case went above and beyond my expectations. His expertise, attention to detail, and commitment to achieving the best possible outcome were evident throughout the entire process. He took the time to mentor me, ensuring I understood the legal complexities involved to make informed decisions. Alex is the kind of guy you would want to have a beer with and has made a meaningful impact on me. I also want to acknowledge Todd Spodek, the leader of the firm, who played a crucial role in my case. His leadership and support bolstered the efforts of Alex, and his involvement highlighted the firm's commitment to excellence. Thanks to Alex Zhik and Todd Spodek, I achieved the outcome I desired, and I am incredibly grateful for their professionalism, expertise, and genuine care. If you're in need of legal representation, look no further than this outstanding team.

Load more

Google rating score: 4.9 of 5, based on 736 reviews

5. Business Claiming the ERC for Too Much of a Tax Period

It’s possible, but uncommon, to qualify for the entire quarter if operations were fully or partially suspended. More likely, you’d only qualify for the specific period of suspension.

6. Business Did Not Pay Wages or Did Not Exist During the Eligibility Period

You can only claim the ERC for wages you actually paid during the eligible periods when your business was operational.

7. Promoter Says There’s Nothing to Lose

Beware of promoters who claim there’s no risk in claiming the ERC. There could be penalties, interest, and costs associated with an incorrect claim.

What Should You Do?

If any of these red flags apply to your ERC claim, it’s time to take action:

1. Review Your Eligibility

Go back and carefully review the ERC eligibility requirements. Consult a tax professional if needed to ensure you truly qualified.

2. Consider the IRS Programs

The IRS has introduced two programs to help businesses resolve questionable ERC claims:

The Withdrawal Option

If you haven’t received your ERC payment yet, or if you have but haven’t cashed the check, you can withdraw your claim without penalty.

The Voluntary Disclosure Program (VDP)

If you’ve already received and cashed an ERC payment you may not have qualified for, you can apply for the VDP by March 22, 2024. Under this program, you’ll need to repay 80% of the credit, but the IRS will waive penalties and interest.

3. File Amended Returns

If you claimed the ERC, you’ll need to amend your 2020 and/or 2021 tax returns to reduce your wage expense deductions by the amount of the credit claimed.

4. Consider a Protective Income Tax Refund Claim

To avoid getting caught in a situation where you’ve paid tax on the ERC but the IRS denies your claim, consider filing a protective income tax refund claim.

The Bottom Line

The ERC was a valuable lifeline for businesses during the pandemic, but, the IRS is cracking down on questionable claims. If any of the seven red flags apply to your situation, take action immediately. Review your eligibility, consider the IRS programs, file amended returns, and potentially file a protective refund claim. And, most importantly, consult a tax professional to ensure you’re handling your ERC claim correctly.