The Internal Revenue Service (IRS) has issued an urgent reminder to American businesses about correcting improper Employee Retention Credit (ERC) claims. If your business has filed for the ERC and later discovered inaccuracies, taking swift action can save you from penalties, interest, and potential audits.
Act Before the Deadline
The IRS has extended an opportunity to businesses through the Second Employee Retention Credit Voluntary Disclosure Program (ERC VDP). The deadline to apply is November 22, 2024. This program offers businesses a chance to correct improper ERC claims with significant advantages:
- 15% Penalty Discount: Businesses can resolve discrepancies while benefiting from reduced penalties.
- Interest Avoidance: Timely corrections help businesses avoid accumulating interest charges.
- Audit Protection: Participating in the program can reduce the likelihood of future audits related to ERC claims.
The IRS strongly urges businesses to review their ERC eligibility requirements and consider the program if they’ve received ERC payments but are unsure of their accuracy.
Benefits
Correcting your ERC claims through the Voluntary Disclosure Program provides multiple benefits, including:
- Mitigating Risks: Avoid hefty penalties or interest fees that could harm your business finances.
- Maintaining Compliance: Ensure your business adheres to IRS regulations, protecting your reputation.
- Cost Savings: A 15% discount on penalties helps reduce the financial impact of correcting errors.
IRS Claim
For businesses whose ERC claims are still under review or unpaid, the IRS also offers a Claim Withdrawal Program. This program is ideal for businesses that realize their claims were made in error before they receive any payments.
If your business is in this situation:
- Review Eligibility Criteria: Revisit the IRS’s Employee Retention Credit Eligibility Checklist.
- Seek Expert Advice: The IRS recommends hiring a trusted tax professional to assist in navigating the process.
- Submit a Claim Withdrawal: This ensures no improper payment is issued, avoiding the need for future corrections.
ERC Pitfalls
The IRS has flagged several warning signs for improper ERC claims. Businesses should exercise caution and seek professional guidance when:
- The eligibility requirements for ERC claims seem unclear.
- There’s been reliance on third-party services promising large refunds without adequate documentation.
- Claims were made without thorough review of payroll tax filings and documentation.
How to Stay Compliant
For businesses concerned about the legitimacy of their ERC claims, here are actionable steps:
- Use the IRS Eligibility Checklist: Available on the IRS website, this tool ensures your claims meet the required criteria.
- Consult a Tax Professional: A trusted expert can help you review and rectify discrepancies effectively.
- Apply for Voluntary Disclosure: If your claims are questionable, applying before the November 22, 2024 deadline can save you from future complications.
Staying proactive and ensuring compliance now will help protect your business from audits, penalties, and financial risks in the future.
FAQs
What is the ERC VDP deadline?
The deadline is November 22, 2024.
How much is the penalty discount in the ERC VDP?
The penalty discount is 15%.
What is the Claim Withdrawal Program?
It allows businesses to withdraw unpaid ERC claims.
Why hire a tax professional for ERC claims?
To ensure accuracy and compliance with IRS rules.
Where can I find the ERC eligibility checklist?
It’s available on the IRS website.
