In recent months, the IRS has made significant moves to address widespread issues related to Employee Retention Credit (ERC) claims. The timeline of events reveals a concerted effort by the IRS to clamp down on fraudulent claims and ensure compliance among businesses.

A Timeline of Key Events

September 2023- Moratorium on ERC Claims

In September 2023, the IRS took a decisive step by placing a moratorium on new ERC claims. This pause was implemented to give the agency time to address mounting concerns over the legitimacy of many claims being submitted. The IRS aimed to scrutinize existing claims more thoroughly and curb the rising tide of fraudulent submissions.

December 2023- Identification of Ineligible Claims

By December 2023, the IRS had identified over 20,000 ERC claims filed by entities that were ineligible. Investigations revealed that these entities either did not exist during the COVID-19 pandemic or had no employees during that period. Essentially, these claims were fabricated to take advantage of the ERC program.

March 2024- Criminal Investigations and Focus on Compliance

In March 2024, the IRS announced that more than $3 billion worth of ERC claims were under criminal investigation. This announcement underscored the severity of the issue and the agency’s commitment to tackling fraud. Additionally, the IRS increased its focus on compliance and scrutinized promoters who misled businesses or lacked proper knowledge of ERC regulations.

Why the IRS Is Reversing Course

The IRS’s reversal of ERC claims is driven by the need to protect the integrity of the tax system and ensure that only eligible businesses benefit from the program. The discovery of widespread fraud and misuse of the ERC necessitated a robust response. By halting new claims, investigating existing ones, and targeting fraudulent promoters, the IRS aims to restore confidence in the ERC program and safeguard public funds.

What This Means for Legitimate Businesses

For legitimate businesses, these developments highlight the importance of compliance and thorough documentation. Here are the steps you should take to ensure your ERC claims are valid and well-supported:

1. Review Your Documentation: Go back and meticulously review your documentation related to ERC claims. Ensure that you understand the rules and regulations governing the ERC and that your documentation supports the claims you have made.

• • Narrative Impact Analysis Report: Our firm offers a Narrative Impact Analysis Report, which can be invaluable in this process. This report includes a comprehensive list of all mandates you were required to work under during the pandemic, the impact of those mandates on your operations, and whether they resulted in a reduction of your ability to operate in the ordinary course.

2. Ensure Robust Documentation: Having strong documentation is crucial. This includes maintaining records of employee wages, evidence of business operations during the pandemic, and any government mandates that impacted your business. Solid documentation will support your ERC claim and provide a defense in case of an audit.

The IRS’s actions underscore the importance of integrity and compliance in claiming the Employee Retention Credit. By taking proactive steps to review and strengthen your documentation, you can safeguard your business against potential issues and ensure that your claims are legitimate. Our firm is here to assist you with detailed reports and guidance to navigate this complex landscape successfully.

If you have any questions or think you may be eligible, click here to schedule your assessment.