Just when you thought you were getting a grip on your back taxes, the IRS throws another curveball into the mix. With words like “tsunami” and ”rampant fraud” making headlines, the IRS has announced a sweeping moratorium on processing new Employee Retention Credit (ERC) claims. If you were counting on this as a lifeline for your business, hold onto your hat because things are about to get a little bumpy.
Tax Relief News: The “Tsunami” of ERC Claims
IRS Commissioner Danny Werfel stated, ”We assumed we’d see a trickle. We are seeing a tsunami.” Indeed, the numbers echo his sentiment. The IRS has received a whopping 3.6 million ERC claims since the program’s inception. A staggering 600,000 of these were filed in just the last 90 days, accounting for 15% of all ERC claims.
It’s a surge that has left the IRS and tax professionals on edge. This influx has raised alarms about the legitimacy of these claims, pressuring the IRS to initiate an immediate halt that will last until at least December 31, 2023.
Existing Filed Claims Face Late Delays
If you’ve already filed an ERC claim, you’re probably wondering when you’ll see that desperately needed money hit your bank account. Well, brace yourself. The IRS has turned from a sprint to a crawl.
From 90 to 180 Days—Doubling Down on Unpaid Delays
Normally, the IRS aims to process these ERC claims within a standard 90-day window. Under usual circumstances, that would mean a quarter of a fiscal year—just enough time for you to plan your next business move. Now, however, the game has changed.
The IRS has stretched this timeline to 180 days or more. That’s half a fiscal year. For a small business, especially one that’s been counting on this credit to maintain operations or retain employees, this could feel like an eternity. If your business is running on a shoestring budget, waiting six months for funds can feel like a game of financial Jenga, with each month pulling out a piece and hoping the tower doesn’t topple.
The Added Complexity of Last Year’s Compliance Reviews
If the extended timeframe isn’t daunting enough, the IRS is upping the ante by adding another layer of scrutiny to existing claims. This means that your claim will not just be processed but dissected, examined, and analyzed with a fine-toothed comb.
Why the added scrutiny? The IRS has found itself inundated with an alarming number of fraudulent or ineligible claims. Hence, every application in the pipeline now becomes a suspect until proven innocent. This compliance review process is meant to weed out fraudulent claims, but it also puts additional strain on genuine businesses that need the credit to survive.
Be Prepared for Paperwork
The IRS may require additional documentation to vet your claim. Forget one-and-done; this has turned into a serial drama where the paperwork never ends. You’ll need to prove, and potentially re-prove, your eligibility for the ERC. This could involve additional financial statements, employee records, or documentation showing your adherence to pandemic-related governmental orders affecting your business.
The IRS Stance on Scams: Definitions and Meanings
“The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors,” said Werfel. With an increasing number of questionable claims, the IRS aims to protect not just ERC applicants but all taxpayers from the fallout.
Sure, you might have heard tales of folks promising a quick and hefty ERC claim—a modern-day tax El Dorado. These are often aggressive promoters and marketers who peddle the dream of easy tax incentives. But beware, for these smooth talkers may lure you into the dreaded swampland of erroneous claims, setting you up for the ultimate nightmare: paying back taxes on funds you never should have received.
Business owners are strongly urged to consult with a trusted tax professional who understands the intricate ERC rules. Steering clear of aggressive promoters and marketers can save you from the dreaded scenario of paying back taxes on erroneous ERC claims.
What You Should Do If You Have a Pending ERC Claim
What’s more nerve-wracking than waiting for the IRS to review your application? Maybe realizing that you could have made an error. But hold on to your hat—there’s a way to save your skin if you’re sweating bullets over a pending ERC claim.
Re-Examine, Re-Evaluate, and Re-Submit
The IRS is not just some monolithic entity handing out judgments like an Old Testament deity. They’re providing clear signposts, advising businesses to retrace their steps and pore over the ERC guidelines with the scrutiny of Sherlock Holmes on a case. If you’ve already submitted a claim that’s pending review, this could be your golden window of opportunity to revisit the details. It’s like being given a cheat sheet before the final exam!
The Price of Ignorance is Steep
The reason for this revision is far from trivial. Submitting incorrect or incomplete ERC claims isn’t just a minor inconvenience. You’re walking on a tightrope here, and the fall can be steep—laden with penalties and, yes, back taxes that you’d have to pay. It’s a downward spiral you definitely want to avoid.
The Art of the Graceful Exit: Withdrawing an Improper Claim
What do you do if you discover an error? Can you make a U-turn? The IRS provides a way out, and it’s an escape hatch you might want to consider using. Withdrawing an improper claim can save you more than just blushes; it can save you from a fiscal fiasco that could leave scars on your financial health. Think of it as the equivalent of pulling your hand back just before touching a hot stove.
The Clock is Ticking, But There’s Still Time
When you’re juggling multiple business responsibilities, the temptation to just “let things be” is strong. However, in the realm of ERC claims, complacency is your enemy. The good news? There’s still time to act, reassess, and amend. If you’ve submitted a claim that’s still pending, seize this moment to double-check everything. Get that magnifying glass out and comb through your application with the meticulousness of a detective.
For Those Who Haven’t Filed Yet
As the saying goes, “Forewarned is forearmed.” If you’re standing on the precipice, contemplating whether to plunge into the vast sea of ERC claims, then pause. Take a deep breath. Now is the perfect moment to re-examine the terrain ahead. There are submerged rocks and hidden currents, and navigating them poorly could cost you dearly in back taxes, penalties, and nightmarish audits.
Verify Then Leap: The Importance of Eligibility Checks
Like a skydiver triple-checking their parachute, your first step should be to verify your eligibility. There’s a temptation to rush through the process, fueled by the attractive financial relief that the ERC promises. But this is not a dash; it’s more of a carefully measured stroll, preferably accompanied by an expert who knows the lay of the land.
It’s a Jungle Out There
The ERC guidelines can be as dense as a rainforest, and without a seasoned guide, you might find yourself lost. The ideal first move? Consult a trusted tax professional who can help you decode the ERC riddles. You wouldn’t trek through a jungle without a map, so why wander through tax laws without proper guidance?
Don’t Trip Over Your Own Feet: Avoid Common Mistakes
You might think you’ve got this all wrapped up, but beware—the path to ERC claims is rife with pitfalls. From incorrect employee counts to miscalculated credit amounts, there are numerous errors that can trip you up. Trust me, you don’t want to wade into this territory, only to find yourself ensnared in a web of penalties and back taxes. Even the bravest souls can get tangled up in the labyrinthine maze of tax law.
The Unseen Cost of Hurried Decisions
Remember, hurried claims aren’t just costly—they can be detrimental to the long-term health of your business. Think of an audit as an invasive surgery. It’s not just painful; it can leave you exposed and vulnerable, questioning your every move long after the process has ended.
To File or Not to File, That is the Question
If you’re still on the fence about filing an ERC claim, err on the side of caution. Double-check, triple-check, and then check again. Engage with a tax professional, and ensure that you’re not just eligible but also fully compliant with the rules. When you do finally decide to take that leap, you’ll do so with the confidence that comes from thorough preparation and due diligence.
IRS Takes on Fraudulent Claims
For those who are intentionally abusing the system, be warned. The IRS Criminal Investigation division has already initiated 252 investigations, with 15 leading to federal charges. If you’re one of those unscrupulous marketers encouraging illegitimate ERC claims, you might just be the next in line to face the music.
Existing Deadlines and the Call for Congressional Action
The moratorium hasn’t changed existing deadlines for amended returns related to the ERC. The looming deadline of April 15, 2024, for 2020 claims and April 15, 2025, for 2021 remains in place. However, Congress may also step in to tighten the reins on this out-of-control program, including potentially regulating tax return preparers who have been operating with little oversight.
Warning Signs and Reporting Abuse
Given the aggressive marketing techniques used to promote ERC claims, the IRS has outlined various warning signs. From fake letters that mimic official correspondence to withholding details about eligibility, these tactics are specifically designed to lure businesses into the claims trap.
If you suspect abuse, you can report it to the IRS using Form 14242, ensuring that these bad actors don’t make a further mess of an already complicated tax landscape.
Final Thoughts on Federal Back Tax Debt and Delinquent Help
The moratorium on new ERC claims is a significant development that underscores the escalating concerns over fraudulent activities. As we navigate this complex scenario, stay informed, be cautious, and consult with knowledgeable tax professionals to avoid the dreaded maze of back taxes. It’s a turbulent time, but with careful planning and proper advice, you can weather this storm.
For a free constitution with an experienced tax attorney, call The Tax Defenders at 312-345-5440.
