On July 26, 2024, the Internal Revenue Service (IRS) released additional guidance on the Employee Retention Credit (ERC), urging businesses to ensure its claims are accurate and valid to avoid penalties, audits, interest and repayment. The IRS recently highlighted five new common issues seen in erroneous ERC claims, in addition to the seven areas previously identified. This comes as the agency is preparing to announce further steps to counter improper ERC claims.

The ERC was introduced as a pandemic-era relief measure to help businesses retain employees. However, the IRS has identified that aggressive promoters have misled many businesses into claiming this credit incorrectly. The agency has analyzed approximately one million ERC claims, representing more than $86 billion, and has identified tens of thousands of claims with clear signs of being erroneous. It has also flagged hundreds of thousands more claims as potentially incorrect.

Previously highlighted issues include claiming the ERC for all quarters, citing non-qualifying government orders, incorrect calculations, citing supply chain issues, claiming ERC for the entire tax period, and claiming ERC for periods when the business didn’t exist or didn’t pay wages. For more information, please see the IRS news release.

The IRS is urging businesses to work with trusted tax professionals to review its claims and discuss the next steps. The agency has identified more than $2 billion in erroneous claims since last fall and is intensifying efforts to rectify these issues. Businesses that have discovered questionable ERC claims have several options to resolve these issues. They can withdraw the claim, amend their returns to correct the claim amount or participate in the soon to re-open ERC Voluntary Disclosure Program. Additional Information will be provided as soon as it is available.

Our State and Local Tax team is available to assist you with questions related to this topic. Please contact our professionals for more information at SALT@GMCO.COM.