While the Employee Retention Credit has helped out tons of employees throughout the United States, it has also caused tax preparers to be extra cautious when filing these claims. Currently, the IRS is working diligently to help practitioners prepare for third-party marketers trying to affect their clients. Additionally, the agency has also increased the number of warnings telling tax preparers to take a very close look at the ERC guidelines before filing any claims.
Dangerous Third-Party Marketers
Whether it is through social media, the radio, or on a bus bench, Third parties have been relentlessly promoting ERC fraud. These “marketers” charge large upfront fees or charge certain contingency fees. However, key information is left out of these promotions.
This left-out information is that wage deductions that are claimed on a federal business return must be reduced by the amount of the credit. Failure to do this will almost certainly result in an audit.
ERC Claims in 2023
The IRS states that there have been numerous attempts by taxpayers to file the ERC this tax season. The agency is focusing on providing additional guidance for tax professionals that should be available sooner rather than later.
Risks Associated With ERC
Deb Rood CPA is the risk control consulting director at CNA Accountants Professional Liability, the underwriter of the AICPA Professional Liability Program. Rood said this in a statement regarding the current dangers of the ERC.
“We certainly see the risk associated with the ERC. “We are receiving numerous phone calls from CPAs who are quite concerned about ERC calculations made by third parties, as well as the potential for claims against the accountant. CPAs are looking for strategies they can implement now to help manage their risk.”
“In some cases, the IRS has up to five years to audit payroll tax returns claiming ERC, longer than the typical three-year statute of limitations for income tax returns,” Rood stated. “This two-year difference can create a ‘whipsaw effect’ for taxpayers whereby otherwise available income tax wage deductions in years closed under the statute of limitations may be lost, along with the disallowed ERC and related penalties and interest being assessed on underpaid employment taxes. A triple whammy if you will.”
Wrap Up
There is certainly a level of risk when it comes to third-party marketing of the ERC this year. Practitioners need to proceed with extra caution, and taxpayers have to avoid falling into a trap that can lead them to face auditing or penalties.