That sound you heard yesterday was the sigh of relief from tax professionals everywhere when the IRS announced their latest update on the Employee Retention Tax Credit (ERC or ERTC) as part of their efforts to fight the rampant fraud that has taken over the incredibly well intentioned program.

For those who have not been following the updates over the past few months (really years), the ERTC (or ERC) is a tax credit that was part of Covid-19 relief packages with the intention to do just what it said - allow employers to keep their team on staff during a very difficult time by subsidizing a portion of their wages in the form of a payroll tax credit.  Specific guidance was released on who qualified for this credit.   Some of that guidance was very black and white, such as a designated start up recovery business or a specific percentage drop in gross receipts.   Other requirements contained an opportunity to make a judgment call.

While this is a very impactful credit that many deserving business owners have benefited from, as with all far reaching programs like this, it has also fallen prey to a very high level of fraudulent and questionable claims being made.  This led to the IRS putting a temporary moratorium on processing any new claims starting in September 2023 while they reviewed what next steps needed to be taken to prevent additional unqualified ERC claims as well as how to address those that have already been filed.

"Yesterday the IRS announced a Voluntary Disclosure Program for businesses to withdraw their ERC claims and repay 80% of the credit they received."

Which brings us back to yesterday’s announcement.  Yesterday the IRS announced a Voluntary Disclosure Program for businesses to withdraw their claims and repay 80% of the credit they received.  This finally gives an avenue to those businesses who are reconsidering or concerned about their true eligibility for the credit but have already received the funds. Previously, you could only withdraw an ERC claim if you had not yet received the funds. 

The structure of this program also shows that the IRS recognizes that most of these businesses never saw a portion of the full credit due to the ERC mills charging a percentage of the overall credit on their fee, and so they are not requiring the full amount returned, but 80%, without interest or penalties, and it also appears there will be the option to set up installment plans if necessary.   

"If you claimed the ERC credit due to the requirements that have judgment calls (namely, the supply chain disruption) and not very clear “yes or no” benchmarks, this is your opportunity to think it through again and confirm you really feel you qualified for the credit."

This program is open through March 22, 2024 and only taxpayers who are not under a current IRS review of their ERTC or the related payroll periods are eligible.  During this time and once the program closes, the IRS is continuing to audit existing ERC claims (both that are processing and those that have been paid) and will be assessing potential penalties and interest on those amounts.

If you claimed the ERC credit due to the requirements that have judgment calls (namely, the supply chain disruption) and not very clear “yes or no” benchmarks, this is your opportunity to think it through again and confirm you really feel you qualified for the credit.  Talk with your tax advisor (especially if you filed through a third party).  If you have any questions on this or would like an additional opinion on your specific situation, please contact our Club Capital Tax Team at tax@club.capital.   

We are here to support any businesses that are working through this complicated discussion.

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