Latest Details on the ERC from the IRS

November 1st, 2023 at 2:31 PM

Here’s a brief review of the significant changes and updates related to the Employee Retention Credit (ERC).

Background and Evolution

Originally established under the CARES Act in March 2020, the ERC has experienced numerous transformations. Initially, businesses had to choose between claiming the ERC and taking out a forgivable loan under the Paycheck Protection Program (PPP)—a restriction retroactively changed in December 2020 through the Consolidated Appropriations Act, 2021 (CAA).

The CAA not only retroactively allowed the 2020 ERC for those who opted for PPP but also expanded the ERC’s availability into the first two quarters of 2021 and increased its value.

Changes and Challenges

Several subsequent IRS notices and congressional acts, including the American Rescue Plan Act of 2021 (ARPA), further extended and enhanced the ERC.

But then, sadly, the Infrastructure Investment and Jobs Act enacted in November 2021 retroactively removed the ERC for the fourth quarter of 2021, causing potential complications for businesses that had already processed their claims.

Professional Responsibility and IRS Warnings

Recent communications from the IRS highlight the crucial role of tax professionals in ensuring ERC compliance.

A March 7, 2023, notice reminded practitioners of their Circular 230 responsibilities, underscoring the need for diligence in evaluating ERC eligibility and compliance—even for claims not prepared by the practitioner. Further, the IRS’s inclusion of the ERC in its Dirty Dozen list on March 20, 2023, signals increased scrutiny of ERC claims and emphasizes the potential risks of scams and improper claims.

Maximizing Benefits While Minimizing Risks

Despite these challenges and increased scrutiny, the ERC remains a valuable opportunity for eligible businesses, offering up to $26,000 per qualifying employee. It is crucial for employers to thoroughly assess their eligibility, maintain robust documentation, and seek professional guidance to navigate the complexities of ERC claims.

Mark S. Fineberg, CPA

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