The Internal Revenue Service's efforts to halt fraudulent claims for the Employee Retention Credit have protected more than $1 billion since the IRS imposed a
The IRS's special ERC
The IRS has also
On the enforcement side, the IRS has determined that more than 12,000 entities filed over 22,000 claims that were improper and resulted in $572 million in assessments. The agency said it's continuing this work, and more activity is planned in this and other areas in the months ahead.
The IRS may reopen the Voluntary Disclosure Program at a future date depending on various factors, including whether Congress extends the statute of limitations for ERP claims, according to the IRS official.
"Congress is currently considering a proposal that extends the statute of limitations to give the IRS additional time to address unscrupulous ERP claims," said the official. "The IRS is also continuing to closely monitor pending legislation, which would provide the IRS with additional tools to address improper claims."
However, the
The $78 billion bill, known as the Tax Relief for American Workers and Families Act, is largely paid for by halting new ERC claims as of January 31 and levying additional penalties on promoters of fraudulent claims for the tax credit. Under current law, the statute of limitations period on assessment for the COVID-related ERC is generally five years from the date of the claim. The bill would extend the period to six years. But it would also extend the period for taxpayers to claim valid deductions for wages attributable to invalid ERC claims that are corrected after the normal period of limitations.
Currently, the statute of limitations for claims processed for tax year 2020 will expire on April 15, and assessments on tax year 2020 claims will end after that date. However, compliance activities regarding tax year 2021 ERC claims will continue, since that statute does not expire until later.
"Depending on how things progress, there's a chance the IRS may reopen the ERC VDP in some fashion," said the official.
If the program is reopened at a future date, IRS Commissioner Danny Werfel has said the terms will be no better than the current program, which offers a special 20% discount.
"The IRS has made important progress in our compliance efforts protecting more than $1 billion in revenue in just six months, but we remain deeply concerned about widespread abuse involving these claims that have harmed small businesses," Werfel said in a statement Friday. "We are encouraged by the results so far of our initiatives designed to help misled businesses, and the IRS will continue our broader compliance work given the aggressive marketing we've seen with this credit."
The IRS official noted that those with unprocessed claims still have a window of opportunity to take advantage of the ERC claim withdrawal process. "We are keeping that withdrawal window open for now, and we continue to urge businesses with ERC to review program guidelines given the misleading and aggressive marketing," said the official.
The IRS currently has more than 1 million unprocessed ERC claims, so the claim withdrawal process remains an option for businesses that may have submitted improper claims.
"We urge people to review the guidance and take steps to withdraw their claim to avoid future compliance action," said the IRS official. "IRS.gov has a number of tools to help with reviewing eligibility. We have thousands of audits underway, criminal investigations taking place, and we plan to send more compliance letters. Our first round of letters covered tax year 2020, but more letters are planned in the coming months to address tax year 2021, which involves larger ERC claims, so even though one deadline is passing today with the voluntary disclosure program, the IRS work in this area continues to intensify. And we encourage those with unprocessed claims to talk to a trusted tax professional and review the claims. We do not want well-intentioned employers caught up in a compliance action."
Bill Smith, director of tax technical services at CBIZ MHM's National Tax Office, has been watching the ERC claims process unfold. He noted that the end of the voluntary disclosure program comes nearly two months after the January 31 cutoff date for new ERC claims in the Tax Relief for American Workers and Families Act.
"We're here on March 22, which is the last day for the voluntary disclosures on the Employee Retention Tax Credit claims, almost two months down the road from when they're going to retroactively say you can't submit claims," he said. "That's another bizarre twist. As I've been telling people, it is essentially the only pay-for, so they don't have much room to mess with that."
He is skeptical about the prospects for the legislation, given that it needs 60 votes to pass in the closely divided Senate, although lawmakers are being heavily lobbied by industry groups like the National Association of Manufacturers, which want to see extensions of expired tax breaks like the ability to write off research and development expenses in the first year without amortizing them over five years, as well as 100% bonus depreciation and interest expensing.
He believes it would be a good idea for the IRS to eventually reopen the voluntary disclosure program. "It's good to set a deadline to get people not to procrastinate, but it seems like a no-brainer to reopen it at some point," said Smith. "It's a lot easier for them if people withdraw claims, and they just need to process the withdrawals [rather] than have to audit."
The Treasury Department is still hoping to see the tax extenders legislation passed.
"While the IRS has worked diligently to recover $1 billion and enforcement efforts continue, Congress must act to protect the interests of U.S. taxpayers and honest small businesses and give the IRS the tools it needs to tackle fraud," said U.S. Deputy Secretary of the Treasury Wally Adeyemo in a statement Friday.
