How can businesses ensure accuracy in their Employee Retention Credit claims on their tax returns?
Some individuals have misrepresented the eligibility criteria for the Employee Retention Credit (ERC). The IRS has identified seven indicators of potential incorrect claims and advises businesses to consult a tax professional for resolution if necessary.
As the scope of ERC compliance efforts widens, the IRS emphasizes the importance of initiating the claim withdrawal process if a business needs to retract an ERC claim for any unpaid tax period.
Indicators of Incorrect ERC Claims:
- Excessive Quarters Claimed:
Some advisors have encouraged employers to claim the ERC for all available quarters, which is often inappropriate. It’s essential for employers to assess their eligibility for each quarter carefully. - Ineligible Government Orders:
Misinformation suggests that any government order in place in an area allows businesses to claim the ERC, regardless of actual operational impact. Similarly, claims based on communications from agencies like OSHA may not be valid. - Incorrect Employee Count and Calculations:
Employers should exercise caution when claiming the ERC for all wages paid to every employee. Specific rules govern which wages qualify, and calculations should be accurate to avoid overclaiming. - Misunderstood Supply Chain Disruptions:
Experiencing a supply chain disruption does not automatically qualify an employer for the ERC. Detailed examination of supplier government orders is necessary. - Overstated Claim Periods:
Claiming ERC for an entire calendar quarter due to partial suspension of business operations is uncommon. Claims should align with actual periods of eligibility, supported by appropriate payroll records. - Nonexistent or Unpaid Wages:
ERC can only be claimed for periods when wages were actually paid to employees. Instances of claiming ERC for periods before a business existed or without actual wage payments have been noted. - False Promises of Risk-Free Claims:
Businesses should be wary of promoters who assure them of no consequences in claiming the ERC. Incorrect claims can lead to repayment obligations, penalties, interest, audits, and associated expenses.
The IRS offers an ERC Eligibility Checklist, accessible to both tax professionals and taxpayers, to assess potential eligibility for the credit.
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