IRS has taken action against ineligible claims for ERC, a refundable tax credit designed to support businesses and tax-exempt organizations that maintained employees payments during the COVID-19 pandemic. ERC is not available to individuals.
On December 6, 2023, the IRS announced it will send over 20,000 letters to disallow claims to taxpayers which are not eligible for the credit. The targeted taxpayers include entities that did not exist during the ERC timeframe or there are no paid employees during the claimed period.
IRS Commissioner Danny Werfel highlighted the prevalence of erroneous claims due to aggressive promotion of the credit. He emphasized that this action is the initial step in the IRS’s compliance efforts, with more disallowance letters expected soon. IRS cautioned against signs of fraudulent promotions, such as unsolicited advertisements via calls, emails or texts.
How to Withdraw ERC Claims
IRS will accept and process requests to withdraw pending ERC claims under the special withdrawal process. Taxpayers have until at least the end of the year to request a withdrawal.
Employers can use the ERC claim withdrawal process if all of the following apply:
- Making the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
- Filing the adjusted return only to claim the ERC without any other adjustments.
- Wishing to withdraw the entire amount of their ERC claim.
- Not have received payment for their claim, or not having cashed or deposited the refund check.
For those ineligibles for the withdrawal process, taxpayers can reduce or eliminate their ERC claim by filing an amended return.
The withdrawn claims will be treated as if they were never filed, ensuring that small business owners and others will not face penalties or interest.
How to Challenge Disallowed ERC Letters
Taxpayers receiving disallowed ERC letters from IRS have options to challenge these decisions. They can respond with documentation that supports their eligibility or claim amount, or they can file an administrative appeal.
If you receive an erroneous disallowed ERC letter, contact a business tax expert at Evolved to help you resolve this issue.
How to Verify an ERC Claim
If you’ve submitted an ERC claim, IRS encourages taxpayers to refer to ERC resources available on IRS.gov.
Businesses still eligible for an ERC claim will not be impacted by this crackdown on disallowed claims. If you’ve submitted an ERC claim application and have any questions, our team at Evolved is here to help.
Evolved is a tax compliance and advisory firm with offices in New York City and Philadelphia, and clients nationally throughout the US. We provide tax provision, private equity and venture capital services alongside advisory for high net-worth tax and family office tax.
