The IRS has entered a new phase of its review process for the Employee Retention Credit (ERC), highlighting significant concerns about improper claims. This step underscores the importance of ensuring compliance with the eligibility requirements to avoid potential penalties and audits.
Key Developments in ERC Review
The IRS’s recent analysis has revealed that a substantial majority of ERC claims pose a high risk of being improper. This finding has prompted the agency to enhance its scrutiny and review mechanisms. The IRS is committed to protecting the integrity of the tax system and ensuring that only eligible businesses benefit from this credit.
How the ERC Claims Stack Up
High-Risk Claims: Between 10% and 20% of the claims reviewed so far are in the highest risk group, showing clear signs of errors and will be denied in the weeks ahead, according to the IRS.
Moderate-Risk Claims: The IRS will gather more information about 60% to 70% of the claims because they show an unacceptable level of risk. This group requires further scrutiny to determine eligibility.
Low-Risk Claims: Between 10% and 20% of the claims show a low risk. The IRS will begin judiciously processing more of these claims and expects some of these payments to be made later this summer.
The IRS emphasized that it will prioritize processing the oldest claims first, while no claims submitted during the moratorium will be processed at this time.
What This Means for Businesses
Businesses claiming the ERC must ensure that their claims are accurate and meet all eligibility criteria. The IRS’s intensified review process indicates a higher likelihood of audits and penalties for those found to be non-compliant. Therefore, businesses should thoroughly review their ERC claims and seek professional advice if needed.
Steps to Ensure Compliance
1. Understand Eligibility Requirements: Businesses must meet specific criteria to qualify for the ERC, including experiencing significant declines in gross receipts or being subject to government orders restricting operations.
2. Maintain Detailed Records: Proper documentation is crucial. Businesses should keep comprehensive records of their eligibility, including financial statements, government orders, and payroll records.
3. Seek Professional Guidance: Consulting with a tax professional can help ensure that claims are accurate and compliant with IRS regulations. Professionals can provide valuable insights and help navigate the complexities of ERC eligibility and documentation.
IRS’s Commitment to Taxpayer Rights
While the IRS is increasing its review efforts, it also emphasizes its commitment to taxpayer rights. The agency encourages businesses to come forward voluntarily if they identify errors in their ERC claims. The IRS provides avenues for correcting mistakes and mitigating potential penalties.
Conclusion
The IRS’s intensified scrutiny of ERC claims is a critical reminder for businesses to ensure compliance and accuracy in their claims. By understanding the eligibility requirements, maintaining detailed records, and seeking professional guidance, businesses can protect themselves from potential audits and penalties. Staying informed and proactive is essential to navigating the complexities of the Employee Retention Credit and safeguarding the benefits it offers.
Call to Action
Ensure your ERC claims are accurate and compliant. Consult with a tax professional today to review your eligibility and documentation. Protect your business from potential audits and penalties by taking proactive steps now. For personalized assistance, contact our COO Anshul Goyal at anshul@kkca.io.
Disclaimer
This information is provided for general informational purposes only and does not constitute legal, tax, or accounting advice. Businesses should consult with a professional advisor for specific guidance.
FAQs
1. What is the Employee Retention Credit (ERC)?
The ERC is a refundable tax credit for businesses that kept employees on payroll during the COVID-19 pandemic despite experiencing financial hardships.
2. Why is the IRS intensifying scrutiny on ERC claims?
The IRS has identified a high risk of improper claims and is enhancing its review process to protect the integrity of the tax system.
3. What percentage of ERC claims are considered high-risk?
Between 10% and 20% of the claims reviewed are in the highest risk group, showing clear signs of errors.
4. What should businesses do if their ERC claim is under review?
Businesses should review their claims for accuracy, maintain detailed records, and seek professional guidance to ensure compliance.
5. What documentation is necessary for ERC claims?
Comprehensive records of eligibility, including financial statements, government orders, and payroll records, are essential for ERC claims.
6. Can businesses correct errors in their ERC claims?
Yes, the IRS encourages businesses to come forward voluntarily to correct mistakes and mitigate potential penalties.
7. What are the eligibility requirements for the ERC?
Businesses must have experienced significant declines in gross receipts or been subject to government orders restricting operations to qualify for the ERC.
8. How does the IRS prioritize ERC claims processing?
The IRS prioritizes processing the oldest claims first and has a moratorium on new claims submissions during this period.
9. What are the consequences of submitting an improper ERC claim?
Submitting an improper claim can result in audits, penalties, and the denial of the credit.
10. Where can businesses find more information about the ERC?
Businesses can visit the official IRS website for detailed information and updates on ERC eligibility and compliance requirements.