Mary Wood from Meadows Collier provided insight into the recent updates on the employee retention credit, discussing the IRS’s moratorium on new claims and the potential impact of pending legislation. The employee retention credit was enacted as part of the CARES Act to encourage employers to retain employees during the economic challenges brought on by COVID-19. However, the IRS discovered a significant increase in claims, leading to concerns about fraud and improper claims by promoters.
The IRS imposed a moratorium on processing new claims to investigate the validity of the claims. This has led to delays in processing claims, leaving many legitimate businesses waiting for their refunds. Some businesses have taken legal action by filing suits for a refund in federal district court to expedite the processing of their claims. The backlog of claims filed prior to the moratorium, coupled with the extended processing time, has created frustration among taxpayers waiting for their refunds.
The IRS also offered a special employee retention credit voluntary disclosure program, which recently closed. This program allowed taxpayers to correct any issues with their filing by paying back 80% of the amount refunded with no penalties and interest. However, participating in this program did not provide criminal protections for willful filing of fraudulent claims. Mary Wood also discussed the implications of the regular voluntary disclosure program for taxpayers with potential criminal exposure.
The Tax Relief for American Families and Workers Act of 2024, which passed the House earlier this year, would sunset the employee retention credit early and impose stiffer penalties on promoters of the credit. This legislation has created uncertainty for businesses with legitimate claims, prompting them to consider filing their claims despite the pending legislation. The IRS is expected to continue aggressively pursuing exams and investigations to address fraud related to the credit.
Mary Wood emphasized the importance of businesses with legitimate claims to file them and ensure they meet all eligibility requirements. She also recommended considering options such as the voluntary disclosure program or potentially withdrawing a claim if there are concerns about its validity. Businesses that believe they submitted valid claims but have not received a response from the IRS may need to consider taking legal action. Overall, taxpayers are advised to have all necessary documentation in order to support their claims in the event of an IRS examination.