How Businesses Can Navigate Mistaken ERC Claims

Anyone else jump on all those great online Black Friday deals this year? There were a bunch. But, if you chose an online purchase because of the ease of returning said item, you might want to check the return policy.

Looks like quite a few retailers are charging for online returns now. Puts a bit of a damper on the gift-giving, especially if the recipient is difficult to please. At least gift cards are always an option.

Now, you’ve no doubt heard about the IRS’s crackdown on false employee retention credit (ERC) filings as of late. Because of the false advertising post-pandemic from what have now been labeled “ERC mills,” a flood of ineligible ERC claims were filed. It got to the point that the IRS declared a moratorium on new claims for the credit back in September and running through the end of the year.

Claims are still being paid, but more slowly, because of heightened analysis over each individual claim. The ads saying you could receive thousands in government money to help your business were often falsely portrayed, and now many honest small business owners are finding themselves in a bind.

So the IRS last month released new guidance about a new, special withdrawal process for an incorrectly filed ERC claim. If your business filed for an employee retention credit, here’s a guide to help you know how to proceed.

How Businesses Can Navigate Mistaken ERC Claims
“Mistakes are the portals of discovery.” ― James Joyce

If you are a business owner who claimed the Employee Retention Credit and are now concerned about its accuracy, you’re not alone. There are so many businesses in this camp that the IRS has now made special provisions for businesses to withdraw their claims without penalty.

Here’s how to know if you should withdraw your claim and how to go about it.

What is the Employee Retention Credit?

During the pandemic, legislators created the ERC as a refundable tax credit for businesses if they kept employees on the payroll rather than letting them go.

Full eligibility requirements are here, but generally, businesses are eligible if they meet two out of three of these conditions:
– Your business was fully or partially shut down because of government restrictions during 2020 or the first three quarters of 2021.
– You experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021.
– Your business qualified as a recovery startup business for 2021’s third and fourth quarters.

How do I know if I filed incorrectly?

The questionable ERC mills often charge a fee for their services and promise to maximize the credit that their clients can receive. The IRS is specifically targeting the mills that have claimed credits for clients who weren’t eligible, who received more credit than they were entitled to, or who committed outright fraud.

If you were pressured or misled by ERC marketers into filing an ineligible claim, let us know and we can double-check your return for accuracy:

Who qualifies to withdraw an inaccurately filed claim?

The IRS’s new withdrawal option is available for employers who asked for ERC money but haven’t received it yet. You can withdraw your request without having to worry about paying back the money, plus extra fees and interest, later on.

If you claimed the employee retention credit and your claim is still under review, you can also still change your mind and withdraw it under the new provisions.

Here are the official qualifications:
– You made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
– You filed the adjusted return only to claim the ERC and made no other adjustments.
– You want to withdraw the entire amount of your ERC claim.
– The IRS has not paid your claim, or the IRS has paid the claim, but you haven’t cashed or deposited the refund check.

Businesses that are not eligible to use the new withdrawal process can reduce or eliminate their ERC claim by filing an amended return.

How do I withdraw my ERC claim?

Claims that are withdrawn will be treated as if they were never filed. To take advantage of the new claim withdrawal process, carefully follow the special instructions at IRS.gov/withdrawmyerc.

There are different means of withdrawing your claim depending on your situation, but it’s important to act quickly if you qualify since the withdrawal process is only accessible if your claim hasn’t been reviewed or paid, or the credit check hasn’t been cashed.

As always, we’re here to help with this process for your Coastal Southeastern NC business. I should also note that the IRS has promised further communication on this issue, so if you don’t qualify for this special withdrawal process, do stay tuned.