IRS to Deny Billions Worth of Employee Retention Credit Claims

The IRS has announced that it will begin denying claims for the Employee Retention Credit (ERC) as part of its efforts to curb fraudulent claims. This decision is expected to impact many small businesses that have been relying on the ERC to retain employees during challenging economic times.

The IRS reported investigating more than 1 million claims totaling $86 billion, and claim 60% to 70%+ carry an “unacceptable level of risk.”

Key Points

Background on ERC: The Employee Retention Credit was introduced as part of the CARES Act in 2020 to help businesses keep employees on their payroll during the COVID-19 pandemic. It provided a refundable tax credit for wages paid to employees, making it a crucial lifeline for many struggling businesses.

Fraudulent Claims Concerns: The IRS has identified a significant number of fraudulent claims being filed for the ERC. This has prompted the agency to take a stricter stance on approving these credits. The IRS will now scrutinize claims more thoroughly and deny those that do not meet the stringent eligibility criteria.

Impact on Small Businesses: Small businesses that have legitimately claimed the ERC may face delays or denials, which could affect their financial stability. It is essential for businesses to ensure that their claims are well-documented and comply with all IRS guidelines to avoid complications.

IRS Guidelines: The IRS has issued detailed guidelines on what constitutes a valid ERC claim. Businesses must demonstrate that they faced significant revenue declines or were subject to government orders that fully or partially suspended their operations. Accurate and thorough record-keeping is crucial to substantiate these claims.

Future of ERC: While the ERC has been a vital support mechanism for small businesses, its future is now uncertain. The IRS's crackdown on fraudulent claims could lead to more stringent regulations and oversight, potentially making it harder for businesses to access this credit.

What Small Businesses Can Do

1. Review Claims: Small business owners should review their ERC claims to ensure they meet all eligibility requirements. It may be beneficial to consult with a tax professional to verify compliance.
2. Maintain Records: Keep detailed records of revenue declines, government orders affecting operations, and wages paid to employees. This documentation will be critical if the IRS requests additional information.
3. Stay Informed: Keep up-to-date with any new IRS announcements or changes to the ERC regulations. This will help businesses stay compliant and avoid potential penalties or denials.
4. Consider Alternatives: Explore other financial assistance programs and tax credits that may be available. Diversifying sources of financial support can help mitigate the impact of potential ERC denials.

The IRS's decision to deny ERC claims is a significant development for small businesses. By taking proactive steps to ensure compliance and staying informed about regulatory changes, businesses can navigate this challenging landscape more effectively.

For more information, you can read the full article on CNBC.

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