Businesses across the country have been anxiously awaiting updates on their Employee Retention Credit (ERC) claims, and it appears the IRS is finally moving forward with processing these older claims. However, despite this progress, many companies are still not receiving their funds. Some valid claims are being denied, and others face demands for further verification—even after submitting complete information over a year ago.

The IRS Pushes for Compliance

The IRS is intensifying its compliance efforts around the ERC, with audits and investigations targeting potentially improper claims. Some businesses have received disallowance letters, and up to $5 billion in questionable payments are blocked​. While this may slow down payments for legitimate claims, it’s part of the IRS’s more significant effort to ensure the accuracy of claims.

New IRS Voluntary Disclosure Program

For businesses that may have filed improper claims, the IRS has reopened its Employee Retention Credit Voluntary Disclosure Program (VDP), which runs through November 22, 2024. This program allows companies to voluntarily correct improper ERC claims, repaying 85% of the claimed credit without facing penalties or interest​. With the IRS continuing to review and disallow improper claims, this is an opportunity for businesses to fix mistakes before facing audits.

To underscore the importance of participating in the Voluntary Disclosure Program, the IRS also announced it plans to mail up to 30,000 new letters to reverse or recapture potentially more than $1 billion in improper ERC claims.

“The limited reopening of the Voluntary Disclosure Program provides an opportunity for those with improper claims to come in ahead of IRS compliance work and get a discount on repayments,” said IRS Commissioner Danny Werfel. 

“The push by promoters flooded the IRS with questionable ERC claims, which clogged our systems and slowed work,” Werfel added. “We recognize well-meaning businesses are caught up in this, and we are taking important steps to help them. This includes reopening the Voluntary Disclosure Program and getting payments to qualifying businesses.”

Beware of Misleading Marketing Letters

Another issue to be aware of is the surge of deceptive marketing targeting businesses with pending ERC claims. Some companies have reported receiving what appears to be IRS correspondence, only to discover it’s from law firms offering to file lawsuits against the IRS on a contingency basis. Be cautious of such notices and verify the legitimacy of any communication you receive.

Steps to Resolve Incorrect ERC Claims

Acting quickly is essential if you suspect your business has incorrectly claimed the ERC based on any warning signs above. Here are the steps you can take to resolve the situation:

  • ERC Claim Withdrawal Program: The IRS offers an ERC Withdrawal Program for businesses with unprocessed claims. By participating, your business can withdraw the ERC claim as if it was never filed, thus avoiding potential penalties, interest, and further scrutiny.
  • Amending a Return: If your claim has already been processed, you can amend your tax return to correct the ERC amount. This step will help ensure compliance and reduce the risk of additional penalties.
  • ERC Voluntary Disclosure Program: The IRS has reopened it, allowing businesses to correct their claims voluntarily. This program offers a way to rectify errors and reduce the likelihood of further issues, including audits.

Find Help Navigating ERC Issues

Navigating the complex landscape of ERC claims can be overwhelming, especially with the IRS ramping up compliance efforts. Whether you need help verifying your ERC claim, responding to IRS notices, or addressing any potential errors in your claim, CPA Nerds is here to assist. Contact us today to ensure you receive the funds you deserve and avoid unnecessary delays or penalties.