The federal Employer Retention Credit (ERC) helped many businesses during the pandemic, allowing them to get a big portion of their payroll money back in exchange for keeping workers employed.
The IRS, however, has temporarily halted processing ERC claims and advisors may have business-owning clients who were victims of ERC “mills” that over-promoted the credit.
“The IRS has placed a moratorium on processing of new claims ... at least through Dec. 31 following concerns that a substantial share of claims are ineligible, and to protect businesses from facing penalties or interest payments,” said Donald N. Hoffman, a Baltimore-based partner in audit and assurance at Eisner Advisory Group and president of The Prosperity Consulting Group.
Clients should be reviewing any ERC claims, advisors say.
“All claims are going to be undergoing increased scrutiny, so it’s a good time to reassess the merits of their claims with trusted tax professionals who have a deep understanding of ERC eligibility rules,” added Bill Smith, national director of tax technical services at CBIZ MHM's National Tax Office in Washington, D.C.
“Overall, business owners understood the ERC, either through communications with their accountant advisors or through the barrage of marketing communications,” Smith said. “Unfortunately, the marketing communications frequently offered the moon, which often caused clients to have heightened expectations which were frequently deflated by diligent examination.”
According to the IRS, a client can ask to withdraw an ERC claim if that client made the claim on an adjusted employment tax return (IRS Forms 941-X, 943-X, 944-X or CT-1X). The client must have also filed their adjusted return only to claim the ERC and must want to withdraw the entire amount of their credit. Also, the IRS cannot have paid the ERC claim or your client must not have cashed or deposited the refund check.
The procedure to request a withdrawal varies depending on whether the client has received or cashed a refund check and whether the claim is under IRS audit.
“If the employer is under audit for the ERC, the employer can ask the assigned IRS representative to withdraw the ERC claim,” said Lawrence Pon, a CPA in Redwood City, Calif., and a frequent speaker to tax pros on the ERC moratorium and withdrawal process. “Or, if the employer received a check but hasn’t cashed it, they can return the check to the IRS and write VOID on it.”
The IRS says they’ll continue to process ERC claims filed before the moratorium but “processing times are taking up to 180 days or longer,” Hoffman said.