IRS Issues ERC Alert and Your Responsibility as a Business Owner

Today the IRS issued a news alert regarding the employee retention credit (ERC). As the March 22, 2024, deadline nears for the ERC Voluntary Disclosure Program, individuals who mistakenly filed a claim and received payment should take note. This program enables businesses to repay only 80% of the claim amount.

Taxpayers who filed a claim that hasn’t been processed should also review the guidelines and quickly pursue the claim withdrawal process if they now see their claim is ineligible.

The news alert, IR-2024-39, encourages taxpayers to talk to a reputable tax professional for help with an ERC claim. If a taxpayer used an ERC promoter, they should review these warning signs to determine if they should participate in the disclosure program.

7 suspicious signs an ERC claim could be incorrect

  1. Too many quarters being claimed
  2. Government orders that don’t qualify
  3. Too many employees and wrong calculations
  4. Business citing supply chain issues
  5. Business claiming ERC for too much of a tax period
  6. Business didn’t pay wages or didn’t exist during eligibility period
  7. Promoter says there’s nothing to lose

What is your responsibility?

As you begin to see more of these clients come to your door, we want to remind you of your responsibility as a preparer.

The Office of Professional Responsibility (OPR) took the position that a preparer of a return is responsible for, and must have accurate knowledge of, all information impacting the submitted return. Further, OPR stated it does not believe a practitioner can rely on third-party advice provisions as provided under Circular 230, §10.37, since the firms submitting ERC claims do not meet the definition of tax preparer.

In the event a client has filed an ERC claim that you disagree with, you have two choices:

  1. Inform the client that you do not agree with their eligibility for the credit and take corrective action to amend the claim for credit, or
  2. Disengage from the client

Failure to take responsibility for the ERC claim, provide knowledge to the client as to why the ERC claim is erroneous, or to ignore it completely may subject practitioners to potential penalties and sanctions for filing frivolous returns, understating a clients’ tax obligation, failure to be sufficiently educated, etc.