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IRS Issues Notice to Highlight Seven Warning Signs of Incorrect Employee Retention Credit Claims

The Internal Revenue Service (IRS) published a notice urging businesses to review seven suspicious signs of a bad Employee Retention Credit (ERC) claim and see if the agency’s special programs can help them avoid future compliance issues.

Employers who improperly claimed ERC can avoid penalties and interest—and even get a discount on repayments if they apply by March 22, 2024, to the ERC Voluntary Disclosure Program. The IRS also offers a special claim withdrawal process for businesses whose claim is still pending. The IRS notes that taking steps now to resolve any issues can help businesses get right and avoid future IRS action.

The seven suspicious signs an ERC claim could be incorrect include: (1) too many quarters being claimed; (2) citing government orders that don’t comply with ERC requirements; (3) including too many employees and incorrect calculations in ERC claims; (4) citing supply chain disruptions in ERC claims, which the IRS says is uncommon; (5) claiming ERC for too much of a tax period; (6) claiming the ERC when no wages were paid or when a business did not exist during the ERC eligibility period; and (7) businesses who claimed the credit because an ERC tax promoter told them they “have nothing to lose.”

The IRS also released an interactive ERC Eligibility Checklist that taxpayers and tax professionals can use to check potential eligibility for the ERC. More details on the seven suspicious warning signs and the ERC’s Voluntary Disclosure Program and Special Claim Withdrawal Process are available through the IRS notice here.

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