There has been an ongoing discussion between the IRS, Congress, and the AICPA regarding the millions of businesses that have been a target of tax credit companies trying to help them claim the employee retention tax credit. There is a big concern about fraudulent ERTC claims and the IRS has been ramping up efforts to shut this down.
What is the ERTC?
The Employee Retention Tax Credit is a refundable credit that was designed to benefit businesses that were affected by the recent pandemic, either because they were shut down for a period of time by the government or had a significant decline in gross receipts. Businesses were able to qualify for this credit via either method, and the credit was available for certain health costs and wages paid between the qualifying periods of March 13, 2020, and September 30, 2021.
A recent AICPA town hall meeting on September 8th noted the significance of the issue with Congress and the IRS about the aggressiveness of ERTC firms trying to claim these credits for the companies they are servicing. The expectation from the IRS is that they will audit these claims in an insistent way given the level of abuse they have found on the topic.
State of the Claims
Due to the pandemic, the IRS was suffering from massive backlogs of individual and business tax returns in 2020 and 2021, and the expansion of the ERTC in 2021 led to a massive jump in amended payroll tax returns to claim the credit. On top of that, filing for the credit did not require the filer to indicate which test was used to qualify the business or provide any upfront documentation that the claim was valid. This forced the IRS to pay first and verify the claims later, and as you could have guessed, this led to thousands of fraudulent and abused claims.
Wrap Up
The IRS is going to be making an effort to rectify the false claims made by thousands of businesses. It is yet to be seen whether or not this will shake out in the IRS’ favor, however, if you have any questions or concerns on the ERTC for your business, give us a call.