During the height of the Covid pandemic, the Internal Revenue Service (IRS) allowed companies to claim an Employee Retention Credit (ERC), if the companies had met specified criteria. However, tens of thousands of ineligible companies claimed the ERC on their tax filings and now must pay the amount due.

Since many companies were led to file claims by unscrupulous tax advisor firms, the IRS has created a voluntary disclosure program that allows businesses to withdraw incorrect ERC claims.

While Baltimore, Columbia, Frederick, and Rockville businesses may still be digging out from the winter's snow, this is not time to be frozen when it comes to dealing with the ERC. If eligible companies apply to the program by March 22, 2024, they may be able to pay a reduced balance while avoiding interest and penalties.

THE BACKSTORY OF THE ERC 

Of course, with businesses in the DMV and surrounding areas often providing goods and services to government employees, many of these companies took a huge hit when government offices shut down, and other local restrictions were implemented. So it is understandable if businesses in these areas were thrilled to hear tax advisors promise they could get some much-needed tax relief.  

However, ERC only applied to a very limited number of companies. Therefore, many employers didn't realize that their advisors were filing meritless claims—which the companies would eventually have to repay.   

THE ERC VOLUNTARY DISCLOSURE PROGRAM

Recognizing that many impacted companies filed for the ERC in good faith, the IRS recently created a voluntary disclosure program to address the issue.

Under the new program, if eligible employers come forward and voluntarily withdraw their credit claims and pay 80 percent of the tax due relating to the credit, then the IRS will waive the remaining 20 percent. At the same time, these companies will be exempt from any related interest and penalty.

If employers come forward but cannot pay the 80 percent, then they can negotiate an installment play—but that would be subject to interest and penalty.

PROGRAM ELIGIBILITY

In addition to meeting the March 22 application deadline, employers also need to meet other criteria for the program. First, they must agree to identify the tax advisors or preparers who advised them on the ERC.

They also must come forward on their own, before receiving a notice from the IRS regarding their ineligibility.

Employers are also ineligible if a third party has previously notified the IRS of their wrongful claim or if the IRS has already begun either a tax or criminal investigation.

AN EXPERIENCED TAX ATTORNEY CAN MAKE ALL THE DIFFERENCE 

The IRS has begun notifying thousands of businesses of their ineligibility for the ERC—and receiving that notice also makes them ineligible for the relief provided by the voluntary disclosure program.

Employers who claimed the ERC should consult with a tax attorney who can reexamine their ERC eligibility and, if needed, help the businesses apply for the program as quickly as possible.

Maryland tax attorney Gabaie & Associates has offices in Baltimore, Annapolis, Rockville, and Columbia, and Juda Gabaie specializes in helping business owners with taxes. We can review your current employment tax liability, help you work with the IRS to resolve the ERC claims and other issues, and then come up with a plan to avoid future concerns.  

Contact Gabaie & Associates, LLC today by calling us at (410) 358-1500 or by emailing us to schedule a free consultation.