IRS Attacks Aggressive ERC Marketing Scams and How It Might Affect Your Business

The Internal Revenue Service (IRS) has recently introduced a new initiative to address concerns regarding the accuracy of Employee Retention Credit (ERC) claims. This program, unveiled on October 19 under the designations IR-2023-193 and FS-2023-4, offers a unique opportunity for employers who may have apprehensions about the legitimacy of their ERC claims. The objective is to allow certain employers who have previously filed an ERC claim but have not yet received a refund or have not cashed the refund check to withdraw their submissions. By doing so, they can avoid potential future liabilities in the form of repayment, interest, and penalties. According to the IRS, any claims that are withdrawn will be treated as though they were never filed, providing a much-needed resolution to a complex issue.

The ERC, a refundable tax credit, was established to support employers who continued to pay their employees during the COVID-19 pandemic, especially when their business operations faced full or partial suspension due to government orders or experienced a significant decline in gross receipts during specified periods. However, the eligibility criteria and wage calculations associated with the credit have been a source of confusion and uncertainty for many employers.

Adding to the complexity, the IRS has consistently acknowledged the presence of aggressive ERC marketers and promoters who sometimes exert undue pressure or provide misleading information to employers, encouraging them to make ERC claims they may not genuinely qualify for. The introduction of this withdrawal process aims to provide relief to these employers by allowing them to request the IRS to nullify their ERC claims.

It is essential to note that while employers who opt for the withdrawal process will not face penalties and interest on an incorrect ERC refund, the IRS has made it clear that individuals who willfully submitted fraudulent claims, or those who were involved in such fraudulent conduct, may still be subject to criminal investigations and prosecution. Furthermore, the acceptance of a withdrawal request is contingent upon the IRS’s decision, leaving open the possibility that some withdrawal requests may be rejected.

This withdrawal process is part of a broader ERC compliance effort launched by the IRS in September 2023, which also included a temporary moratorium on processing ERC claims filed after September 14, 2023. Additionally, the IRS has indicated its intention to introduce a settlement initiative to address improper claims that have already been paid out.

Detailed information about the withdrawal process can be found on the IRS website, including eligibility requirements and specific procedures. Employers who use professional payroll companies to file their ERC claims are advised to consult with these companies before initiating a withdrawal request.

To be eligible for the withdrawal process, employers must meet the following criteria:

  1. The ERC claim must have been made on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
  2. The adjusted return must have been filed solely for the purpose of claiming the ERC, with no other adjustments.
  3. The employer must intend to withdraw the entire ERC claim.
  4. The IRS should not have paid the claim; if paid, the taxpayer should not have cashed or deposited the refund check.

In cases where an employer has claimed ERC for multiple calendar quarters using the appropriate forms, they can opt to withdraw the ERC for specific quarters. The withdrawal process must be followed individually for each calendar quarter involved.

For employers who do not meet the eligibility criteria for the withdrawal process, the IRS has suggested the possibility of amending prior returns under specific circumstances.

If an employer has concerns about a misleading ERC claim they have already received payment for, the IRS has indicated that more guidance on this matter will be forthcoming in the near future.

The withdrawal process is straightforward for employers who have not yet received their ERC refund checks:

  1. Copy the adjusted return (e.g., Form 941-X) containing the ERC claim to be withdrawn.
  2. Clearly mark “Withdrawn” in the left margin of the first page.
  3. An authorized person should sign and date the first page alongside their name and title.
  4. Fax the signed copy of the return to the IRS’s ERC claim withdrawal fax line at 855-738-7609.
  5. Retain a copy for the employer’s records.

It’s important to note that if an employer filed Forms 941-X for multiple calendar quarters, they must request withdrawals for each quarter using the appropriate Form 941-X. Mailing the withdrawal request to the IRS is also an option but may result in a longer processing time.

Employers currently under IRS examination can still request an ERC claim withdrawal. They should follow the withdrawal request procedure outlined earlier but consult with their assigned IRS examiner on how to submit the request. If no examiner has been assigned, the withdrawal request should be made in response to the audit notice, following the provided instructions.

For employers who have already received an ERC refund check, the withdrawal procedures are not applicable. However, the IRS is working on additional guidance for these situations, expected to be released later in the year.

Once an employer has submitted a withdrawal request, the IRS will send a letter indicating whether the request has been accepted or rejected. An accepted request is not considered effective until the acceptance letter is received from the IRS. The IRS has not provided specific guidelines for situations where a request is rejected, leaving the process open-ended. In cases where the withdrawal request is approved, the employer may need to amend their income tax returns, particularly if they have already adjusted their income tax returns to account for the ERC claimed.

The IRS strongly encourages employers to seek assistance from reputable tax professionals who are well-versed in the intricate ERC eligibility rules rather than relying on promoters or marketers who may demand hefty contingency fees. A knowledgeable tax professional can provide guidance on the withdrawal process and ensure that ERC claims are valid and supported by appropriate documentation.

Employers should carefully assess the legitimacy of their ERC claims and seek professional guidance when in doubt. For those who meet the eligibility criteria, the withdrawal process provides a valuable opportunity to rectify ERC claims without incurring penalties or interest. Employers who do not qualify for the withdrawal process may explore the option of filing amended returns to address their specific circumstances.

Additionally, the IRS has issued a warning about aggressive marketing scams related to the ERC. Businesses are advised to exercise caution and refrain from sharing personal or financial information with individuals or entities offering to help file ERC claims for a fee. These scams often involve misleading tactics and may lead to significant financial consequences.

The IRS has identified several warning signs of aggressive ERC marketing, including unsolicited calls or advertisements promising an “easy application process,” substantial upfront fees, and fee structures based on a percentage of the ERC refund. Additionally, promoters who refuse to sign the ERC return being filed and make aggressive claims about eligibility should be approached with caution. The IRS also notes that promoters may omit crucial details about eligibility requirements and the impact of the ERC on tax obligations.

To report concerns or obtain assistance related to the ERC withdrawal process or marketing scams, businesses can contact the IRS at 1-800-829-4933.

In this evolving landscape of ERC regulations, employers must stay informed and exercise diligence to protect their interests and avoid potential pitfalls associated with ERC claims and scams.

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