Winning Back-Office Strategies to Boost Your Business Agility
VIEWpoint Issue 1 | 2023
2023 Compliance Trends: Staying Ahead in an Evolving Regulatory E...
The Internal Revenue Service (IRS) is once again reminding taxpayers to carefully review the Employee Retention Credit (ERC) guidelines before trying to claim the credit as promoters continue pushing ineligible people to file. An initial warning about this scheme was shared by the IRS in November 2022, but there continue to be attempts to claim the ERC during the 2023 tax filing season.
Like the IRS, our tax professionals continue to see third parties aggressively promoting these ERC schemes on radio and online. These promoters charge large upfront fees or a fee contingent on the amount of the refund and often do not consider the guidelines associated with claiming this credit. The IRS is actively auditing and conducting criminal investigations related to these false claims.
To avoid this scheme, taxpayers should work with a trusted business tax advisor to determine their eligibility and apply for the credit appropriately. If the business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction.
As a reminder, taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.
The ERC is a refundable tax credit designed for businesses who continued paying employees while shut down due to the COVID-19 pandemic or who had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021. Eligible taxpayers can claim the ERC on an original or amended employment tax return for a period within those dates.
To be eligible for the ERC, employers must have experienced one of the following:
Keep in mind, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021. Additionally, for any quarter, eligible employers cannot claim the ERC on wages that were reported as payroll costs in obtaining PPP loan forgiveness or that were used to claim certain other tax credits.
The IRS is also warning taxpayers of new scams that urge people to use wage information on a tax return to claim false credits in hope of getting a big refund.
One scheme encourages people to use tax software to manually fill out a Form W-2 and include false income information. In this W-2 scheme, scam artists suggest people make up large income and withholding figures as well as the employer it is coming from. Scam artists then instruct people to file the bogus tax return electronically in hopes of getting a substantial refund – sometimes as much as five figures – due to the large amount of withholding.
Two variations of this scheme are also being seen by the IRS, which both involve misusing Form W-2 wage information in hopes of generating a larger refund:
The IRS along with the Security Summit partners are actively watching for this scheme and others. Additionally, the IRS works with payroll companies and large employers – as well as the Social Security Administration – to verify W-2 information.
Taxpayers who participate in this scheme will face a wide range of penalties, which could include a frivolous return penalty of $5,000.
As you prepare to file your tax returns this filing season, it’s important to work with a trusted advisor to help minimize your tax exposure and ensure compliance. To obtain assistance with your filing needs, contact us today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
A quick registration is required to view our resources.
You will only be asked to do this one time (unless you don't save your browser cookies).