On January 16, House Ways and Means Committee announced agreement on The-Tax-Relief-for-American-Families-and-Workers-Act-of-2024.  The proposed revisions in the package terminate the submission period for all ERC claims on January 31, 2024, and the statue of limitations for the Internal Revenue Service (IRS) to investigate Employee Retention Credit (ERC) claims is extended to six years from the date of submission, but also extends the timeframe for taxpayers to claim valid deductions for wages if an ERC claim is deemed invalid.

The proposal also clarifies definitions and significantly amplifies monetary enforcement penalties for ‘bad actor’ firms and/or persons who attempt to fraudulently file an ERC claim, either on behalf of a client or themselves. These increased penalties include:

• Significantly increasing the monetary penalty for intentionally understating a tax liability for financial gain, specifically from the ERC, from $1000 penalty to the greater of $200,000 or 75% of the gross income of the ERC promoter derived from their ERC activities for an organization, or $10,000 for an individual.
• Increasing the monetary penalty for not meeting due diligence requirements for filing an ERC claim from $500 to $1,000 per infraction for a paid tax preparer. In addition, this revision to the original law automatically implicates that paid tax preparer in the intentional understatement liability as described above and it appears that the promoter would be subject to both penalties.
• This proposed revision requires, similarly to other parts of the tax code, that any material advisor involved in an ERC claim is required to disclose information on certain essential transactions, along with a client list, to the IRS. These disclosures will be due 90 days after this proposed revision is enacted.
• This proposed revision offers detailed definition of an ERC “promoter” firm, which appears to exclude accounting firms who typically charge an hourly rate to assist clients with this work.

For employers who erroneously filed an Employee Retention Credit (ERC) claim and wish to withdraw that claim prior to receiving funds, the Internal Revenue Service (IRS) has announced an official withdrawal process. For those who meet the eligibility criteria, an erroneous ERC claim can be withdrawn without penalty if you:

• filed an ERC claim, haven’t received funds, and are not under an audit;
• filed a claim, haven’t received funds, and are currently being audited; or
• filed a claim, received the payment check, but haven’t yet cashed the payment check.

There are specific withdrawal steps to subsequently follow, depending on which of these three situations you find your organization in. If you successfully withdraw your ERC claim, the IRS will notify your organization, and you may have to amend your tax filing accordingly. The IRS recommends working with a professional tax preparer to resolve questions and/or ensure you amend your filing properly.

LeadingAge hosted a live webinar on the IRS Employee Retention Credit audits and appeals processes. View a summary of takeaways from our session led by an expert panel featuring ERC and tax gurus from Forvis, CLA, and Venable Law Firm.

“The Next Phase of the Employee Retention Credit: The IRS Audit” webinar recording is available in the Learning Hub.

The Internal Revenue Service (IRS) released recently details on how organizations that incorrectly claimed and received Employee Retention Credit (ERC) funds can return said funds without penalty. The Voluntary Disclosure Program (VDP) allows any organization that meets program criteria to file before March 22, 2024, and safely repay incorrectly-received ERC funds. Participants will receive the following benefits:

• voluntarily repay only 80% of the total funds received;
• all interest repayments due forgiven;
• exemption from filing amended tax returns;
• exemption from any tax payments on the 20% of ERC funds; retained; and
• free of any assessed penalties for incorrectly claiming the ERC.

Common-sense eligibility parameters apply for participation in this program and there are easy-to-follow instructions on how to apply for the VDP. If your organization went through a third-party firm to apply for the ERC, your firm must apply on your organization’s behalf. Once a closing agreement has been approved and signed by the IRS, your organization can return the funds using the IRS’ tax repayment system. Participation in the VDP does not free an organization from criminal charges if the organization willfully filed a fraudulent claim.

Bipartisan Congressional leaders on tax policy are negotiating a large tax package that would expand the child tax credit and reinstate some corporate tax breaks.  LeadingAge and others are urging negotiators to also include two key low-income housing tax credit provisions in the package: extending the 12.5% increase to the housing credit program that expired in 2021 and lowering the Private Activity Bond threshold test from 50% to 25%. In order to “pay for” the proposed tax changes, this potential proposal would shorten the submission window for new Employee Retention Credit (ERC) claims.

Currently, the  deadlines for ERC claims submission are April 15, 2024, for FY 2020, and April 15, 2025, for FY 2021. There would be a short window for new submission after the bill is enacted; after that, new ERC submissions will be ended. Claims that are pending due to the September 14, 2023, claims processing moratorium would still be processed once lifted if this tax proposal became law. Otherwise, this proposed bill would mostly eliminate new ERC submissions.

The text of the tax proposal is not yet available, but we encourage members to submit ERC claims rapidly. We will provide updates as more information becomes available.

Internal Revenue Service (IRS) Commissioner Danny Werfel announced an immediate moratorium on all processing of new Employee Retention Credit (ERC) claims, citing increasing and substantial fraudulent claims that are flooding the agency. The moratorium will apply to all new claims filed between September 14 and December 31, 2023. The processing time on claims already submitted will be lengthened from an average of three to an average of six months.

The slow-down is intended to give the agency more time to carefully review existing claims, and protect unwitting, ineligible businesses from incurring costly penalties and interest repayments for funds received in error. Recognizing that many small businesses have been taken advantage of by unscrupulous third-party consultants, Werfel said that a process is being developed to allow such small businesses to repay monies they may have already received in error without penalty. Also, a special process is being developed to allow firms with an existing, yet-unprocessed claim to rescind their submission if they discover, upon further review, that their business is not eligible. Meanwhile, “taxpayers are encouraged to review IRS guidance and tools for helping determine ERC eligibility, including frequently asked questions and a new question and answer guide to help businesses understand if they are actually eligible for the credit.

The IRS is working with the Justice Department to see how to pursue and exact penalties on aggressive firms that have intentionally ignored ERC rules and pushed ineligible businesses to apply. 

In the 26-minute QuickCast, “IRS and the Employee Retention Credit: A Changed Landscape,” LeadingAge analysts review recent Internal Revenue Service (IRS) updates that will impact Employee Retention Credit (ERC) eligibility and claims submissions, including the new focus on “bad actor” firms and proposed “amnesty” programs.

In July 2023, the Internal Revenue Service (IRS) released an updated Frequently Asked Questions (FAQs) resource on the Employee Retention Credit (ERC) that adds clarity and definition to the complex eligibility requirements of this COVID-era tax credit program for businesses and employers. Especially notable sections included greater detail on ERC scams, documentation for audits, supply chain disruption claims, and the resolution of the ERC claim backlog.

View a high-level summary that offers members key clarifications, definitions, or expanded sections from the updated IRS ERC FAQs by topical area.

The U.S. House Committee on Ways and Means Oversight Subcommittee held a hearing on July 27, taking testimony on the backlog of the Employee Retention Credit (ERC) processing, Internal Revenue Service (IRS) response to inquiries about ERC credits, and the impact of fraud on those legitimately trying to claim the credit. Four witnesses testified including two Certified Public Accountants who have assisted employers with their applications for the tax credit.

Committee members noted confusion from small businesses about ERC and the extensive processing backlog, and sought recommendations on how to address fraudulent “ERC Mills” promising ERC eligibility. Tax experts who testified suggested that there should be a time-limited amnesty opportunity for well-intended businesses to avoid paying penalties or other actions. No legislative proposals were offered, but many committee members made it clear that the IRS needs to act now to process the backlog of ERC claims, provide additional clarifying guidance related to eligibility and create a process for erroneous claims to be remedied.

The Internal Revenue Service (IRS) issued a July 26 press release indicating a shift in IRS policy to eliminate the Employee Retention Credit (ERC)  backlog and eliminate fraudulent actors and claims. Members of the House Ways & Means committee noted that the timing of this information was interesting as it followed the scheduling of a hearing on the issues with the ERC program. While the IRS claims the backlog of ERC claims has been cleared, many at the July 27 hearing said this was not the experience of those they represented.  

All LeadingAge members who have decided to pursue the Employee Retention Credit (ERC) are invited to join us with a panel of experts from Venable law firm, CliftonLarsonAllen and Forvis to answer your questions about the complexities you’ve encountered in navigating the ERC. ERC Office Hours will be held on Tuesday, April 25th from 3:30-4:30 p.m. ET. Email Dee Pekruhn​ to register.

Following the LeadingAge June 2022 webinar on the Internal Revenue Service (IRS) Employee Retention Credit (ERC), we gathered responses on frequent member questions – written for LeadingAge by Christopher N. Moran, Esq. of Venable LLP, the legal expert for the webinar.

“Navigating the Employee Retention Credit” webinar focuses on the nuance of the Employment Retention Credit (ERC) for aging services providers, including its processes and eligibility requirements.