IRS Opens New Employee Retention Credit Supplemental Claim Process

 Posted on October 15, 2024 in Tax Audits

Recently, the IRS has focused attention on the Employee Retention Credit (ERC), which was created to provide relief to businesses that were affected by the COVID-19 pandemic. This credit was available for certain qualifying businesses in 2020 and 2021, but concerns have been raised about incorrect ERC claims made by businesses during those periods or in the subsequent years. The IRS is now investigating these claims, and taxpayers who made incorrect claims may be subject to tax audits and penalties. As part of these ongoing efforts, the IRS recently announced a supplemental claim process for third-party payers.

Because of the significant penalties that may apply for taxpayers who incorrectly claimed the Employee Retention Credit, it is important to work with an attorney to address this issue. A lawyer with a strong understanding of tax law can help determine the best course of action to help mitigate penalties and resolve any outstanding tax issues that may exist.

ERC Issues Affecting Third-Party Payers

Certain types of businesses may handle tax filings for multiple clients. A third-party payer may report and pay federal employment taxes for other parties under their own Employer Identification Number. In situations where third-party payers incorrectly filed ERC claims for other employers, they have the responsibility to correct this issue.

The IRS has created a supplemental claim process that third-party payers can use to withdraw certain ERC claims. This process may address claims filed prior to February 1, 2024 that have not yet been processed by the IRS. A supplemental claim will be a request for the IRS to stop processing outstanding tax returns in question. When a claim is accepted, the IRS will act as if the third-party payer had never filed these tax returns. Corrected returns filed by the third-party payer will address any outstanding issues.

Third-party payers can only file supplemental claims if they meet specific criteria:

• They must have filed at least one claim that aggregated Employee Retention Credits for clients and/or themselves using their own Employer Identification Number.

• They used an adjusted employment tax return to make ERC claims.

• The claims in question have not yet been processed by the IRS.

If the IRS has already processed a claim and provided a tax credit or refund to a third-party payer, the payer will not be eligible for a supplemental claim. In these situations, they may be eligible to address the incorrect claim through the IRS’s current voluntary disclosure program, which will be open through November 22, 2024.

When filing supplemental claims, third-party payers must submit an adjusted employment tax return for each period in which incorrect ERC claims were filed. Claims must include the correct ERC amount for each applicable period, as well as any other corrections that need to be made. Supplemental claims must be filed by November 22, 2024. After receiving, reviewing, and processing a supplemental claim, the IRS may accept these claims as the sole adjusted employment tax returns rather than the tax returns that were originally filed.

Contact Our San Jose Tax Attorney

Issues related to Employee Retention Credits can be complex, and taxpayers who are concerned about potential penalties will need to make sure they are taking the correct steps to minimize their tax liability. At John D. Teter Law Offices, our San Jose, CA tax lawyer can provide guidance on the options that are available to address erroneous ERC claims or other tax-related issues. We can help determine whether supplemental claims, the voluntary disclosure program, or other methods may be appropriate, and we can also provide representation during tax audits related to these and other issues. To set up a consultation and get more information about how we can assist with tax concerns, contact us today at 408-866-1810.