Get Out of Jail Free Until 03/22/2024

Get Out of Jail Free Until 03/22/2024

EmployerIncentives attended an IRS seminar that was intended to establish a conduit between IRS agents and the clients of Tax Credit processing companies. The IRS is creating these relationships with Tax Credit filers/professionals so that they would distribute IRS communications to their clients and display that information conspicuously on their websites and in blogs. At EmployerIncentives, we are nothing if not chronic rule-followers, so here we are.

The ERC program has been wrought with fraudulent actors since the get go, but things seemed to become untenable for the IRS sometime around the summer of last year. IRS agents that we speak to on the phone as we call for updates will tell us that the situation was always untenable, and the fact that it took until September for the moratorium to go into effect was just bureaucratic inefficiency at its finest. Our in-person session with the IRS agents in our local Springfield NJ branch helped shine the light on how the situation became as it is. Congress makes the laws (the “what”) but then loses the thread when it comes to implementation (the “how”) and it fell to an agency already beleaguered by a decade of cuts to fill in all the details. So, they did the best they could with what they had. In the aftermath of Covid, Congress’s direction for the IRS was to pump out these refunds as quickly as possible, and help the people who need it; a noble goal to be sure. This was a great start, but sometimes when you’re going to fast, you don’t see the problems ahead of you until it’s too late. Thus, the IRS found themselves pushing out refunds without doing enough due diligence to confirm that the clients they were sending out checks for were actually qualified for the program. A huge number of them didn’t.

Speaking to the IRS agents was extremely enlightening, and I’m glad that we went to their program. The different types of fraud they were experiencing were truly mind-boggling. The agent in charge of the meeting was telling us how people were claiming they were entitled to refunds when they didn’t have a business during 2020 or 2021, or how they didn’t have any employees, or their employees were 1099s and they thought they could still apply for the refund. Hearing how these pop-up ERC sweatshops would just crank out 941-Xs without any analysis or clarifying questions really shocked me, but at the same time made me feel super confident that our methods are how the IRS would want a business to operate to assist clients with these credits.

To summarize the IRS’s Public Service Announcement, for a limited time, the IRS is providing literal “get out of jail free” cards for businesses that claimed the Employee Retention Credit under dubious circumstances. Here, the IRS is speaking directly to people who believe they have been duped by an unscrupulous Tax Preparer, or to people who intended to defraud the IRS but who have now gotten cold feet (quick aside here: if you’re the latter, please kindly lose my number). To help mitigate the sheer amount of fraud, the IRS has implemented two methods for a business to recall their ERC claim with little or no penalty.

Now when I say penalty, please understand what tax cheats are normally dealing with. Normally, if you defraud the IRS (again, lose my number), the IRS will make you pay back at least 70% of the principal and add penalties and interest on top that so you’re paying way more than you benefited. That’s before criminal fines and jail time. Don’t forget, the Treasury Department took down Al Capone. They had a framed newspaper article hanging in the meeting room, believe me they take that reputation seriously.

The first recall method is for clients who have sent in a 944-X or 941-X, but who have not received their checks yet. In this method, a business is simply asking the IRS NOT to process a previously submitted adjustment, and claims that are withdrawn in this way will be treated as if they were never filed. The IRS will not impose penalties or interest. A business can use this method only if all of the following bullet points apply:

  • The business made the claim on an adjusted employment tax return (Forms 941-X, 944-X, 943-X or CT-1X).
  • You filed your adjusted return ONLY to claim the ERC and you 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 your claim, but you haven’t cashed or deposited the refund check.

The IRS notes here that if you willfully filed a fraudulent ERC claim, or if you assisted or conspired in such conduct, simply withdrawing the claim will not exempt you from potential criminal investigation or prosecution.

In order to request an ERC claim withdrawal, the next steps will depend on your situation, but you should consult sections A, B, and C from the following page from the IRS website: https://www.irs.gov/newsroom/withdraw-an-employee-retention-credit-erc-claim

The second recall method is the Voluntary Disclosure Program, which ends on March 22nd, 2024. If you claimed and received the ERC but you were ineligible and you need to repay the IRS, you may be able to apply for the ERC-VDP. This program requires you to:

  • Voluntarily pay back the ERC, minus 20%
  • Cooperate with any requests from the IRS for more information, and
  • Sign a closing agreement.

There are several benefits to doing this, and there are a number of rules that must be in order for you to successfully apply, but it’s a lot of information, so I prefer once again to link directly to the source document. Please check out the following official IRS regulations here: https://www.irs.gov/coronavirus/employee-retention-credit-voluntary-disclosure-program

If you need the assistance of a trusted tax professional to help you with either of these forms, we can certainly help. As we like to say, we fix $5.00 haircuts. We’ve been doing tax credits for over 20 years, and our reputation is responsible for our referral business, which is important because we advertise so little. Please understand that if you have tried to defraud the IRS, we want nothing to do with you. If you have been duped by a disreputable vendor, we would be happy to assist you in any way we can.

Sincerely,

Kevin Brice

 

Image: Mark Strozier, CC BY 2.0 <https://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons