What If I Claim ERC Because My Promoter Said There’s Nothing to Lose?

Key Takeaways

• Employee Retention Credit (ERC) eligibility is specific and not all businesses qualify for every quarter.
• Some promoters may mislead businesses into overstating their ERC claims, which can lead to serious consequences.
• There are clear warning signs to look out for that indicate a potentially exaggerated ERC claim.
• If you’ve been misled, it’s essential to take corrective action before the IRS imposes penalties.
• ERTC Express can provide professional assistance to ensure accurate ERC filings and compliance.

Understanding ERC Eligibility

Let’s get one thing straight: the Employee Retention Credit (ERC) is a fantastic support for businesses that faced tough times during the pandemic. The ERC was designed to support businesses that kept employees on the payroll during certain periods of economic hardship. 

But, and this is a big ‘but’, it’s not a free-for-all. There are rules, and they’re there for a reason.

Criteria for Qualifying for the Employee Retention Credit

To qualify for the Employee Retention Credit (ERC), businesses must satisfy specific IRS conditions, primarily relating to the impacts of COVID-19. The ERC aims to encourage businesses to retain employees on their payrolls during the pandemic’s economic disruptions. Key criteria include:

• Operational Suspension: Business operations must have been fully or partially suspended by government order due to COVID-19.
• Decline in Gross Receipts (2020): Gross receipts in any 2020 quarter were less than 50% of those in the corresponding quarter in 2019.
• Decline in Gross Receipts (2021): Gross receipts in any 2021 quarter were less than 80% of those in the same quarter in 2019.
• Recovery Startup Business (2021): Businesses that commenced operations after February 15, 2020, and meet specific conditions may also be eligible under this special provision.

The tax periods for ERC claims cover the calendar years 2020 and 2021. The filing deadline for 2020 claims is April 15, 2024, and for 2021 claims, it is April 15, 2025. Pending legislation, such as the Tax Relief for American Families and Workers Act of 2024, may advance these deadlines to January 31, 2024, but this could change with further legislative developments. 

Each period of eligibility requires its own verification, underscoring the need for precise record-keeping and consultation with knowledgeable advisors to navigate these complex criteria effectively.

Common Misunderstandings Spread by Promoters

Misinformation from promoters about the Employee Retention Credit (ERC) can lead to costly mistakes. It’s important to critically evaluate the guidance received, as the following common misunderstandings can jeopardize your claim:

• Eligibility for All Quarters: Not every quarter is automatically eligible for the ERC, contrary to what some promoters suggest.
• Revenue Declines Equal Eligibility: A simple drop in revenue does not automatically qualify a business for the ERC; specific thresholds must be met.
• Operational Status Equals Qualification: Merely being operational does not ensure eligibility; other specific criteria must be satisfied.

Remember, overly optimistic advice that seems too good to be true often is. Relying on incorrect guidance when the IRS investigates can lead to significant issues, as “my promoter said it was fine” is not a valid defense.

Businesses should be on high alert with any ERC promoter who urged them to claim ERC because they “have nothing to lose.” Businesses that incorrectly claim the ERC risk repayment, penalties, interest, audit and other expenses.

The IRS has an interactive ERC Eligibility Checklist that tax professionals and taxpayers can use to check potential eligibility for ERC. It’s also available as a printable guide PDF. The IRS’s frequently asked questions on ERC also include links to additional resources and some helpful examples.

Telltale Signs of Potential ERC Overstatement

Be aware of these telltale signs that may indicate an overstated Employee Retention Credit (ERC) claim, potentially triggering IRS scrutiny:

• Uniform Credit Claims: Claiming the same credit amount for every employee, across multiple quarters, regardless of individual circumstances.
• Claiming Without Significant Impact: Applying for the ERC even though the business has not experienced significant disruptions due to government orders.
• Lack of Supporting Documentation: Failing to maintain or provide sufficient payroll records to substantiate the ERC claim.

These red flags could prompt the IRS to take a closer look, and possibly audit your business. Just like a root canal, an audit is something best avoided, so ensuring your ERC claims are accurate and well-documented is crucial.

Consequences of False Promises From Promoters

Relying on misleading advice from promoters when filing for tax credits like the ERC can lead to serious repercussions. Businesses need to be vigilant to avoid falling prey to false promises which can result in:

• Increased Audits: The IRS may conduct more frequent and thorough audits if discrepancies are found.
• Financial Penalties: Claims based on false information can lead to hefty penalties and accrued interest, adding to financial strain.
• Reputational Damage: Credibility with the IRS and public trust can suffer, affecting long-term business relations and operations.
• Administrative Burdens: Correcting misleading claims typically involves amending filings, which is both time-consuming and costly.

Ensuring accuracy in your tax filings and vetting the information provided by promoters is critical to maintaining your business’s compliance and integrity.

Steps to Correct False Promises From Promoters

If you suspect that your ERC claim was over claimed due to misleading advice from promoters, it’s important to address the situation with urgency and precision. Here’s how you can correct these claims:

Step-by-step Guide: How to Correct False Promises From Promoters:

STEP #1: REVIEW YOUR CLAIMS
Begin by thoroughly reviewing your ERC claims against the eligibility criteria for each quarter. This will help you identify where the claim was overstated.

STEP #2: GATHER DOCUMENTATION
Collect all relevant payroll records and other supporting documents that were used for the original claim. These will be essential for the correction process.

STEP #3: IDENTIFY DISCREPANCIES
Pinpoint any differences between your claimed amounts and what you were actually eligible for based on the IRS criteria.

STEP #4: SEEK PROFESSIONAL HELP
Consult with a tax professional or a specialized service like ERTC Express. They can offer expert guidance on how to proceed with amending your claims.

STEP #5: AMEND YOUR TAX RETURNS
Prepare and file amended tax returns if necessary or directly reach out to the IRS to explain the discrepancies in your claims.

STEP #6: COMMUNICATE WITH THE IRS
Maintain clear and proactive communication with the IRS, explaining the situation and your steps to correct it.

STEP #7: REPAY ANY OVER CLAIMED AMOUNTS
Arrange to return any funds you received in excess of what you were entitled to. This may include additional calculations for interest or penalties.

STEP #8: DOCUMENT EVERYTHING
Keep detailed records of the entire process, from discovery to correction, which could be invaluable during any future audits or inquiries.

Correcting these errors quickly and transparently can help minimize potential penalties and demonstrates your commitment to compliance.

Prevent Future ERC Errors with ERTC Express

When it comes to ensuring accuracy and compliance with your Employee Retention Credit (ERC) claims, ERTC Express stands as a trusted ally. Here are the key reasons why you can rely on ERTC Express:

• IRS Compliance: ERTC Express keeps abreast of the latest IRS guidelines to ensure your claims adhere to current rules.
• Trusted by the AICPA: Recognized by the American Institute of CPAs, ERTC Express is a reputable source you can depend on.
• U.S.-Based CPAs: The service is supported by certified public accountants from the United States, specialists in U.S. tax law.
• Power of Three – Audit Defense: ERTC Express is prepared to support you in defending your claim should it face an IRS audit.
• Refund Maximization: The service focuses not only on compliance but also on maximizing your legitimate refund to ensure you receive every dollar you qualify for.

By choosing ERTC Express, you’re not just processing a claim; you’re ensuring it’s done correctly, potentially saving you time, money, and unnecessary stress.

Frequently Asked Questions (FAQ)

What Is the Employee Retention Credit?

The Employee Retention Credit, or ERC, is a tax relief measure introduced by the U.S. government to encourage businesses to keep employees on their payroll during the challenges posed by the COVID-19 pandemic. It’s a refundable tax credit that businesses can claim based on qualified wages and health insurance costs they have paid to employees. However, it’s not a blanket credit; there are specific criteria that must be met, and it’s only available for wages paid during certain periods of 2020 and 2021.

How Do I Know If My Business Overclaimed ERC?

Figuring out if you’ve over claimed the ERC starts with understanding the eligibility requirements. If you claimed the credit without meeting the criteria—such as experiencing a significant decline in gross receipts or being subject to government-mandated shutdowns—you may have overclaimed. Additionally, if your ERC amount seems disproportionately high compared to your payroll costs, that’s a sign you might need to reevaluate your claim. It’s wise to consult with a tax professional or utilize a service like ERTC Express to review your claims thoroughly.

Can I Still Claim ERC for Past Quarters?

Yes, if you haven’t yet claimed the ERC and believe you’re eligible for past quarters, you may still be able to claim it by filing amended payroll tax returns. The specific quarters eligible for the ERC are Q2, Q3, and Q4 of 2020, and Q1 through Q3 of 2021. For recovery startup businesses, the credit can also be claimed for Q4 of 2021. Be sure to gather all necessary documentation and consult with a tax professional to ensure your claim is accurate.

What Should I Do If I Receive an IRS Notice Regarding ERC?

If you receive a notice from the IRS concerning your ERC claim, don’t ignore it. Read the notice carefully to understand what the IRS is questioning or requesting. It’s important to respond by the deadline specified in the notice. If you’re unsure how to proceed or if the notice indicates a discrepancy in your claim, it’s best to seek professional advice. Services like ERTC Express can assist you in addressing the notice and taking any necessary corrective action.

How Can ERTC Express Help Me with ERC Claims?

ERTC Express specializes in helping businesses navigate the complexities of the Employee Retention Credit. They offer professional assistance to ensure your claims are accurate and in compliance with IRS regulations. From reviewing your eligibility to preparing documentation and filing claims, ERTC Express provides a comprehensive service. They can also help with responding to IRS notices and amending past claims if needed. Their expertise can be invaluable in maximizing your credit while minimizing risk.