With the Internal Revenue Service making substantial progress in the ongoing effort related to the Employee Retention Credit (ERC) claims, Commissioner Danny Werfel said the agency has entered a new phase of increasing scrutiny on dubious submissions while renewing consumer warnings against aggressive marketing.

Speaking Tuesday at a special roundtable session of tax professionals in Atlanta, Werfel noted the IRS has shifted efforts after successfully clearing the backlog of valid Employee Retention Credits (ERC) claims. Now, the agency is intensifying compliance work and putting in place additional procedures to deal with fraud in the program.

Werfel told a group of tax professionals dealing with fall-out from aggressive ERC claims that the IRS has increased audit and criminal investigation work on these claims, both on the promoters as well as those businesses filing dubious claims.

“The further we get from the pandemic, we believe the percentage of legitimate claims coming in is declining,” Werfel told attendees at the IRS Nationwide Tax Forum in Atlanta. “Instead, we continue to see more and more questionable claims coming in following the onslaught of misleading marketing from promoters pushing businesses to apply. To address this, the IRS continues to intensify our compliance work in this area.”

The Employee Retention Credit, also sometimes called the Employee Retention Tax Credit or ERTC, is a tax credit enacted to help businesses during the pandemic that was subsequently amended three times by Congress. Many businesses legitimately apply for the credit, but aggressive marketing has overshadowed the program. The period of eligibility for the credit for affected businesses is very limited, covering only between March 13, 2020, and Dec. 31, 2021.
Read More

The Employee Retention Credit – Introduction

Congress acted quickly during the worldwide COVID-19 pandemic to provide hiring and other economic incentives to employers.  One particularly helpful relief provision—the employee retention credit (“ERC”)—provided employers with potentially refundable credits for wages that they paid to their employees during certain periods of 2020 and 2021.

Regrettably, Congress’s swift action and subsequent tinkering with the rules and requirements of the ERC left many employers confused as to whether they qualified for the credit in any given calendar quarter.  In an attempt to reduce this confusion, this article provides a primer on the ERC including certain applicable rules and eligibility requirements to claim the ERC.

COVID-19 Legislation 

Congress originally enacted the ERC relief provisions on March 27, 2020, as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. No. 116-136 (the “CARES Act”).  Congress later revised the ERC rules through enactment of: (1) The Taxpayer Certainty and Disaster Relief Act of 2020, Pub. L. No. 116-260 (the “Relief Act”) (enacted December 27, 2020); (2) the American Rescue Plan Act of 2021, Pub. L. No. 117-2 (the “Rescue Plan Act”) (enacted March 11, 2021); and (3) the Infrastructure Investment and Jobs Act, Pub. L. No. 117-58 (the “Infrastructure Act”) (enacted November 15, 2021).  The IRS issued guidance on the ERC through FAQs and various Notices.

Read More

Having been in the taxation and tax policy field for over 30 years, I’ve spent a lot of time studying, researching, speaking, testifying and writing about tax reform. Since early March 2020 with the COVID administrative and legislative changes and proposals, I can’t recall a busier and more complex time so far as tax changes go. There have been a lot of changes enacted quickly. Drafters are doing a great job. Issues easily arise as to interpretation though due to lack of time for adequate review and discussion prior to enactment and due to the volume of changes. Hopefully areas of confusion can be resolved soon so individuals and businesses in need of the legislated assistance can take advantage of the benefits without worry that they may have to give them back later.

I have spend a lot of time over the past many weeks on the following multi-faceted (complex) provisions:

1st – The required paid sick and medical/family leave for employers with under 500 employees in the Family First Coronavirus Response Act (FFCRA) (PL 116-127; 3/18/20). The required salary payments produce refundable payroll tax credits for the employer. And, equivalent credit is provided for self-employed individuals. Between the Dept. of Labor and IRS, there are about 200 FAQs to help explain these provisions!
Read More

The Treasury Department and the Internal Revenue Service launched the Employee Retention Credit, designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.

Does my business qualify to receive the Employee Retention Credit?
The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: State and local governments and their instrumentalities and small businesses who take small business loans.

Qualifying employers must fall into one of two categories:
1. The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
2. The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify
after the end of that quarter.

These measures are calculated each calendar quarter.
Read More