IRS to hold ERC education sessions for tax pros in February

Special agents from IRS Criminal investigation (CI), the law enforcement arm of the IRS, will host education sessions for tax professionals in February to ensure they understand eligibility requirements for employee retention credit (ERC) claims and have the latest ERC claims information. Meanwhile, the IRS said it has not determined when it will end its moratorium on processing new claims, which began four months ago.

The sessions will be at CI field offices in 23 states and Washington, D.C., the IRS said Thursday in a news release. The sessions are specifically designed for tax pros who have claimed ERCs for clients on tax returns from previous years. These tax pros will receive invitations to attend in the mail.

The sessions “will help tax preparers navigate the complexities of ERC claims to ensure they’re in compliance with U.S. tax laws,” IRS CI Chief Jim Lee said in the release.

The agents will address ERC eligibility criteria, documentation requirements to receive ERC claims, and best practices for compliance and accurate reporting.

Meanwhile, the IRS renewed its call for businesses to review their eligibility for the credit. Businesses that have second thoughts about their eligibility after receiving their credit have a March 22 deadline to participate in the IRS Voluntary Disclosure Program, which allows for repayment of 80% of the claim the business received.

Participants in the Voluntary Disclosure Program must share the name of the promoter that advised them on their claim. The IRS said it has nine open investigations of promoters with another 123 promoters under review.

The IRS has also created a special withdrawal program for those with pending claims about which they have eligibility concerns. Both programs can help affected employers avoid penalties and interest on incorrect claims.

The ERC was designed for certain businesses to continue paying employees during the COVID-19 pandemic while their operations were either fully or partially suspended due to a government order or had a significant decline in gross receipts during the eligibility periods. It was generally available to eligible businesses from March 31, 2020, to Sept. 30, 2021, and to Dec. 31, 2021, for recovery startup businesses.

The IRS has led a wide-ranging campaign to curb ERC abuse that the Service blames on misleading marketing campaigns. In September, the IRS announced a moratorium on processing new claims with no date set yet for the end of the pause.

During the next four months, the IRS said, it plans to continue steps on fraud protection measures, which are necessary before it anticipates resuming processing claims submitted after the moratorium began.

As of mid-January, the IRS had 1.13 million ERC claims of which 792,000, or 71%, were received before the moratorium and 338,000, 29%, were received after the pause, an IRS spokesman said in an email. These are in addition to the 3.6 million returns already processed for about $230 billion.

The claims processing is going more slowly because of enhanced compliance reviews, the IRS said. It is moving away from manual transcription of ERC claims and toward digitalization, Commissioner Danny Werfel told the Senate Finance Committee earlier this month. The Service also plans to deploy a new risk analysis strategy to identify additional compliance work, Werfel said, according to a summary of his comments provided by the IRS.

In December, the IRS started sending thousands of letters to taxpayers notifying them of disallowed ERC claims. These disallowed claims involved entities that did not exist or did not have employees on the payroll during the period of eligibility, meaning the businesses did not meet the criteria for the ERC program.

In addition, the IRS plans to send a different set of letters to thousands of ERC recipients related to claiming erroneous or excessive credits. These notices inform recipients that the IRS will recapture the erroneously claimed ERC payment through normal tax assessment and collection procedures.

These letters are for tax year 2020; the IRS will send similar letters for tax year 2021 this spring, the release said.

As of Dec. 31, 2023, CI has begun 352 investigations involving over $2.9 billion in potentially fraudulent ERC claims in tax years 2020–2023. Eighteen of these investigations have resulted in federal charges, with 11 convictions and four sentences that average 21 months. The IRS said it also has thousands of audits in the pipeline.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.