IRS Has Intensified Efforts to Address Questionable Employee Retention Credit Claims

20,000 disallowance letters being mailed, more action and voluntary disclosure program coming

Following an initial assessment in the fall, the IRS has intensified efforts to address questionable Employee Retention Credit Claims. The IRS found that a significant number of taxpayers failed to meet the fundamental criteria for the credit. Commencing this week, individuals ineligible for the credit will receive duplicates of Letter 105 C, indicating the disapproval of their claim.

With over 20,000 letters being sent to taxpayers notifying them of disallowed claims, this action is part of a broader compliance initiative targeting entities that either did not exist or lacked paid employees during the eligible period for the ERC. The move follows increased scrutiny due to misleading marketing campaigns aimed at small businesses. The IRS is implementing a withdrawal program for pending claims and will unveil a voluntary disclosure program to allow recipients of questionable payments to rectify the situation. The focus is on preventing improper payments to ineligible entities and safeguarding against fraudulent claims. The IRS emphasizes the importance of accurate claims to protect businesses from penalties and interest payments.

The ERC is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic, subject to specific eligibility criteria. The disallowance letters provide taxpayers with an opportunity to respond with supporting documentation or file an administrative appeal if they disagree with the disallowance.

The IRS aims to save resources by identifying and addressing incorrect claims before they enter the audit process. Additionally, the IRS is reminding taxpayers of the option to withdraw pending ERC claims through a special withdrawal process, offering relief from potential repayment, interest, and penalties. The withdrawal option is designed to assist those who may have been pressured or misled by marketers or promoters into filing ineligible claims.

Along with the IRS, your trusted tax professionals at Anderson, Adkins and Company continue to caution taxpayers against aggressive marketing tactics. If you have more questions regarding how the IRS has intensified efforts to address questionable Employee Retention Credit claims, or need assistance reviewing the ERC requirements and your eligibility, please reach out to us at 706.288.2000 or .