Initial ERC Claim Disallowance Letters Issued

The IRS has taken a proactive stance by sending out disallowance letters to more than 20,000 businesses. These letters target claims made by businesses that either did not exist or lacked paid employees during the eligibility period (March 13, 2020, to December 31, 2021). This preemptive measure aims to identify ineligible claims before they are paid.

Dubious TV Promotions and Claim Withdrawal Process

A prior warning was issued on September 29th, cautioning business owners against aggressive TV marketing related to ERC claims. Subsequently, a November 9th article outlined a procedure for those who made ineligible claims to withdraw them and avoid potential issues with the IRS. The disallowance letters play a crucial role in preventing incorrect refunds from going to ERC promoters.

How These Letters Help Taxpayers

The disallowance letters serve a dual purpose:

  1. Help ineligible taxpayers avoid audits, repayment, penalties, and interest.
  2. Protect taxpayers by preventing incorrect refunds from reaching ERC promoters.

Enforcement Activities and Future Plans

These disallowance letters are part of the IRS’s broader enforcement activities, with plans for additional letters in the future. The IRS continues to caution taxpayers against aggressive maneuvers by marketers and scammers in the ERC space. However, those engaged in fraudulent activities may face potential criminal investigation and prosecution.

New Voluntary Disclosure Program

Additionally, the IRS launched a new Voluntary Disclosure Program on December 21st, 2023. The new disclosure program allows taxpayers who received ERC but did not qualify to repay only 80% of the credit they received without interest or penalties. Taxpayers must apply by March 22, 2024 to enter the program. To qualify for this program, the taxpayer must provide the IRS with names, addresses, and telephone numbers for the advisors who assisted with the ERC claims. If a taxpayer is unable to repay the 80% of the credit, they may be able to apply for an installment agreement however the taxpayer would be required to pay penalties and interest under the installment agreement.