Is the ERC now in the rearview mirror? Not really, it remains as hot as ever in the tax-refund marketplace, and the truth is the IRS is gearing up its enforcement actions. Don’t think you are impacted? Think again!
Unscrupulous tax representation firms are searching the internet for prospective clients and offering to split the profits from an ERC tax-refund jackpot. But are the tactics they use legitimate? IRS is aggressively prosecuting taxpayers for criminal fraud. We would like to caution you to be sure you know what is a permissible ERC claim and what is not acceptable in the eyes of the IRS. If a claim is too good to be true, it might be fraudulent. There is new debate on qualifying under the partial suspension rules.
If you are part of the more than 50% who have still not filed for ERC (window rapidly closing) we advise you to proceed prudently. ERC refund mills are pushing things too far—we caution clients to avoid falling into their trap. Take a sobering look at both civil and criminal IRS enforcement efforts against fraudulent ERC claims.
The IRS is focusing on THREE things:
- Eligibility,
- Substantiation, and
- Necessary amendments for corrections.
Most specifically, the IRS will focus on substantiating qualifications based on a partial suspension of business operations which requires a taxpayer to demonstrate that a government order interrupted at least a portion of its business. Keep in mind the order must have been more than a “recommendation,” and must have negatively impacted their business by more than a nominal amount. If the IRS even smells fraud –penalties of up to 75% will be imposed, and criminal charges may be brought. In addition to penalties, the credit will be required to be paid with interest.
Sufficient documentation is needed to substantiate eligibility under either the gross receipts decline, or government order criteria, including the severity of the negative impact on operations. This may include workpapers, payroll journals, names and wages of employees, proof of decline in gross receipts, application of PPP loan forgiveness, and bank records. We are advising clients to hold onto their documentation for a minimum of 5 years, instead of the usual 3 years. Keep in mind there is NO TIME LIMIT for the IRS to assess in the case of a false or fraudulent return.
If your claim has already been filed, we strongly suggest an audit of the ERC claim which would review the eligibility and credit amount claimed, and documentation submitted. Should there be a discrepancy, we advise filing an amended return. At the minimum, this would help clients avoid the 20% accuracy penalty.
Contact Us: A reexamination of the taxpayer’s approach to ERC may indeed be in order, we have assisted most of our clients who qualify for the ERC. We’ll show you exactly what you need to do to qualify to claim ERC in 2023 for the 2020 and 2021 years, and do our best to keep you on the right road, travelling in the right direction. Some of IRS’ ERC guidance may vulnerable and many IRS Notices and FAQs interpreting the ERC do not appear to have been promulgated correctly. Talk to us about how IRS Notice 2021-49 views the corporate shareholder’s (and spouse’s) eligibility for ERC—and recommended strategies for response. The latest IRS guidance may help clients recover after Congress ripped 4Q ERC out from under them. Got questions? We have answers at CPA@fuoco.com or 855-542-7537.
