Title: IRS Warns Businesses About False Claims for Pandemic Employee Credit
Introduction:
The U.S. Internal Revenue Service (IRS) has published a list of warning signs for businesses to help them identify false claims for the Employee Retention Credit (ERC), a pandemic-era employee credit program. As the agency estimates that over $2.8 billion worth of credits on these applications could be fake, it is important for businesses to be aware of these warning signs and ensure their eligibility.
1. Identifying False Claims:
The IRS has identified several warning signs related to false ERC claims. One common issue is that some businesses deemed “essential” have filed for ERC claims even though their operations were not fully or partially suspended by a qualifying government order. The IRS urges essential businesses to carefully review eligibility rules to avoid inappropriate claims.
2. Lack of Proof for Suspended Operations:
Many businesses have failed to provide sufficient evidence to prove that their operations were fully or partially suspended due to government orders. It is crucial for businesses to gather and submit the necessary documentation to support their claims for the ERC.
3. Ineligibility for Wages Paid to Family Members:
Business owners seeking claims for wages paid to family members are also deemed ineligible for the ERC. The IRS clarifies that wages paid to related individuals do not qualify for the credit. Businesses should ensure they are aware of the eligible wages under the ERC program.
4. PPP Loan Forgiveness and ERC Eligibility:
Businesses that have taken a loan under the Paycheck Protection Program (PPP) may be ineligible for the ERC if those loans were forgiven. The IRS states that firms cannot claim the ERC on wages if payroll costs were included to secure PPP loan forgiveness. It is essential for businesses to understand the interaction between PPP loans and the ERC.
5. Large Employers and ERC Claims:
Entities classified as “large employers” are not eligible to claim the ERC for workers who provided services during the pandemic period. Businesses falling under this category should be aware of their ineligibility and refrain from making erroneous claims.
Conclusion:
Businesses that show any of these warning signs should consult a trusted tax professional and consider using the special ERC Withdrawal Program. The IRS urges businesses with previously approved claims to review their filings and rectify any incorrect claims promptly. Compliance efforts by the IRS, including criminal probes and audits, have intensified to tackle false ERC claims. It is crucial for businesses to avoid incorrect claims to prevent future issues such as audits, repayment, penalties, and interest.
By being aware of these warning signs and ensuring eligibility, businesses can avoid improper claims and potential financial consequences. The IRS’s efforts to address false claims and promote compliance aim to protect the integrity of the tax system and support legitimate businesses.
