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Table of Contents:
Recent events have caused a shift in the Employee Retention Credit (ERC), including the possibility of early termination and increased focus on detecting fraudulent claims.
IRS Commissioner Danny Werfel stated, “The legitimate claims are surrounded in our inventory by a lot of illegitimate claims, and it’s taking us a long time to sort this through.”
Key insights
- The Proposed Tax Relief for American Families and Workers Act of 2024 might result in an early termination of the ERC on January 31, 2024.
- The IRS is grappling with ferreting out fraudulent ERC claims, compounded by a backlog in claim processing.
- Legislative developments and IRS enforcement initiatives are poised to significantly impact the future trajectory of the ERC.
How could potential legislative changes affect the ERC?
Despite initial plans for the ERC to expire on April 15, 2024 and April 15, 2025 for claims from 2020 and 2021 respectively, the IRS Commissioner, Danny Werfel, spoke to Congress and a tax conference hosted by the Washington D.C. Bar last week.
Werfel stated that the IRS has “no definitive timetable” for ending its moratorium on processing ERC claims received on and after September 14, 2023.
While there is no set end date for the ERC currently, here's what we know behind the legislative changes and what the early expiration could mean for your business:
- The possibility of a legislative agreement to terminate the ERC in line with the 2024 federal budget.
- If the Proposed Tax Relief for American Families and Workers Act of 2024 is passed, the ERC could end as early as January 31, 2024. - The implementation of new processes and procedures to identify illegitimate ERC claims.
- These new measures include the use of scanning technology for transcription, a task that was previously done manually.
- The IRS Commissioner has confirmed that roughly a third of the backlog of ERC returns has been digitized, and the process is expected to continue until at least April.
If the Proposed Tax Relief for American Families and Workers Act of 2024 is passed, the ERC could end as early as January 31, 2024.
What is the impact of a new bipartisan tax legislation on the ERC?
The Proposed Tax Relief for American Families and Workers Act of 2024 might precipitate the termination of the ERC on January 31, 2024. Whether this legislation will be enacted into law remains a point of conjecture.
Senate Finance Committee Chairman Ron Wyden (D-Ore.) and House Ways and Means Committee Chairman Jason T. Smith (R-Mo) are leading the drafting of new tax legislation to expand the Child Tax Credit and revive the expired treatment of certain research and development expenditures under 26 USC §174.
Wyden expressed optimism about concluding the negotiations by January 29, 2023, coinciding with the official start of the filing season for tax year 2023.
To fund these new tax benefits, Wyden and Smith indicated that lawmakers may consider prematurely terminating the ERC shortly after the legislation's enactment.
How are we supporting our customers who haven't received their ERC?
At Innovation Refunds, we remain committed to apprising our customers of these changes.
For customers who have signed their Engagement Agreement with our independent tax professionals and are awaiting their refund, we’ll keep you updated on the situation as it unfolds.
At this time, there is no reason to suspect that any claims filed by our independent tax professionals before September 15, 2023, will not be processed by the IRS.
What can you do if you’re awaiting your ERC?
During this period of uncertainty and change, it's crucial that you keep all your documents readily available. This includes all relevant payroll records, quarterly financials, and any letters you may receive from the IRS regarding your ERC.
We understand that pursuing an ERC involves certain complexities, and you might need additional guidance. If you have any questions regarding the proposed changes to the ERC, IRS letters, or your ERC claim, do not hesitate to reach out. You can contact us at 855-653-1083 or hello@innovationrefunds.com.
