ERC News Update August 2023 (IRS Employee Retention Credit)
ERC News Update - The Commissioner of the IRS has provided an update on the status of the Employee Retention Credit (ERC) on August 2023. In this video we discuss the IRS Commissioner's warnings of a lot of audits that will begin for many small businesses that receive the Employee Retention Credit (ERC).
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Greetings from Freedom Group. Good afternoon. My name is Carmen, and I’m going to be talking today about the IRS’s new phase regarding the ERTC. The employee retention tax credit is a highly sought-after credit. I’m sure you already know about it. And if you don’t, check out our other videos regarding the employee retention tax credit. This credit is a very popular, very successful credit that many people have already applied for and have already been benefited from. This credit has been out since 2020. However, the IRS is signaling a new phase in the ERTC, and they’ve issued a new notice, a new communication, which I’m not going to read through it page by page because that would be quite boring. I’m just going to give you the highlights of what it says in this issue. The new phase is a new… We’re passing on to this new area where the further out we get from COVID, there’s been a change in the type of claims that they’re seeing over at the IRS. There have been a lot of warnings and a lot of little emails and newsletters being put out for their guidance to help those remaining people that are still in the process of applying or with the plans of applying so that they could do it the right way and so that you could receive caution regarding the things that have been happening.
I’m going to read just a few points, so forgive me if I’m looking down here. The commissioner, Danny Warfell from the IRS, says that they are indeed entering this new phase of increased scrutiny on dubious submissions. Dubious, that means doubtful or suspicious claims, okay? They’re warning against this new tactic of a lot of aggressive marketing regarding this credit. I’m sure you’ve probably received a call or two or received an email or have seen ads on social media trying to sell you on the ERTC. That’s definitely something to be careful with, and I’m going to touch upon it and some of the future highlights here of this article. Basically, they’re trying to say through this notice that they have finally caught up. They had a very, very big backlog of 941Xs and original 941s that had been sent in and that they were working on. They are finally caught up. They have received over 2.5 million claims since this credit started. They are caught up. As of mid-July, 99% of the claims that are in there to be processed are only three months old. That’s great because a lot of people were taking anywhere from 6-8 months to receive the check after they process the 941s.
The bad news is that the IRS has increased audit and criminal investigation work on these claims, both on the promoters of these marketing companies that are selling the ERTC, and on businesses that are filing these dubious claims. The percentage of the legitimate claims that are coming in is obviously on the decline, because everybody who really has been proactive about seeking help for their business, they were more proactive and more diligent, and they did it more early on. Now, with the emergence of all these companies contacting everybody, there’s been an increase in claims that are not so legitimate. Let’s see here. Many businesses legitimately apply for the credit, but these aggressive marketing has overshadowed the program. It’s staggering, the amount of just misinformation, dare I say, regarding this credit, and you just have to be very careful with it. We don’t mean to alarm anybody. Just be cautious. They are exploring solutions to reduce fraud. Of course, that’s always on the IRS’s mind. How can we reduce fraud? One of these solutions that they’re talking about is potentially putting an end to… There’s a time frame that you can go back retroactively and seek this credit.
You can go back three years from the due date of the original return, but they’re actually talking about ending it early in helps or in the effort to reduce the fraudulent claims that are being processed. Okay, so… They’ve trained, I’m sure you’ve heard on the news or media sources, that the IRS has hired 87,000 auditors to tackle a myriad of issues, right? Tax returns, corporate, personal, different things. But specifically, the ERTC is a hot topic on their radar. You could definitely expect an increase in audits with anything regarding ERTC. What can happen? If you get audited and they find that you, in fact, were not eligible for all or part of the credit, you’re going to have to pay it back as the business owner that claimed it. Unfortunately, that may put a business in an even worse spot than before they even claimed the credit. That’s definitely not good news. They’ve also offered further guidance because although they revised the law many times since the inception of this credit in efforts to provide more clarity, there was still a level of areas that were a little vague, and they provided more… They released a legal memorandum that came out July 21st of this year.
One of the topics that they touched upon, for example, is a lot of people are trying to claim this credit stating that even though they were not subject to a shutdown, that they had an interruption in their supply chain because the vendors who they buy from, they were subject to a shutdown. That caused the business applying for the credit to have to reduce or take a hit on their sales or whatever their claim is. However, they are specifying in this July 21st memorandum that was released that in a case like this one, they are looking for cases. If you are claiming that your vendor had an interruption because of an executive shutdown, it has to have been bad enough where you had to suspend your operations. Not only that it was a nominal hit or whatever other word the IRS was using, it had to be a big enough interruption where you suspended your operations because you could not get the materials. I know many people have claimed this credit, and that has not been the case. Yes, they’ve had to pay higher for the same item. They’ve had to wait longer for their supply.
However, they have not had to suspend their operations. This is just an example of how they’re specifying and tightening up who can get this credit and who can’t. Back to the topic of the companies that are aggressively marketing. How do you know? What are some of the red flags that you should look out for? Because sometimes you get calls and they’re legitimate, and sometimes, most of the time, they’re not. One of the things that is a red flag with anybody offering you this service is you receiving an unsolicited call. If you have not filled out an e-mail anywhere or called or left a message asking for them to call you back and they just call you out of the blue, that’s a red flag, okay? That’s being a little bit overly aggressive. When these companies tell you that they can tell you if you’re eligible in just a few minutes, that’s also a red flag. This credit is pretty complex, and there’s no way of really telling you that quickly if you’re eligible and how much you would get, okay? Another red flag is them charging large upfront fees that are normally tied to percentages.
A lot of these companies are charging a percentage of the credit that you get back, okay? That in and of itself is a red flag, not only when it comes to ERTC, but in general. You should steer clear of any tax professional that’s going to be charging a percentage based on a refund that a client may get, okay? Let’s see. Another very important thing is if you’ve already said yes and you started doing this credit, this claim, this service with one of these companies, and you’re at the point where they sent you the 941, so you can sign it so they can mail it out, or for you to mail it out, they work differently in certain cases, check and see if they signed the 941X, because a lot of times these companies that are doing sketchy things, they’re not going to put their name, or their business name, or their information on the return. They’re going to leave the taxpayer to sign it and further putting the attention, the spotlight on the taxpayer. It’s going to look like the taxpayer applied for this credit completely on their own, and they weren’t helped by the professional in the E.
Hurt, DC. That’s definitely a red flag. If you’re at that point and you see that they did not sign it, don’t sign it. Call somebody else, call a professional to see if you indeed qualify for this credit. Let’s see what else it says here. The aggressive claims from these promoters stating that the business qualifies before any discussion of the taxpayer situation. Total red flag. That’s impossible to tell. There’s not a one-size-fits-all. The IRS is also seeing wildly aggressive suggestions from these marketers, urging businesses to submit the claim because there’s nothing to lose. Well, there’s a whole lot to lose. If you end up getting an $80,000 credit or any amount, even if it’s 20 or 10,000, and you weren’t supposed to get it, and all of a sudden you get a letter from the IRS, or you have to go through an audit and you have to pay all that money back, that could be pretty devastating. That could put a business in a worse-off position, like I said before, than before they asked for the credit. Definitely, you have to be careful and don’t let the promise of this money that is to come, which I know can be tempting.
I know some people are in really dire situations out there still, and they’re just trying to get afloat. It’s very tempting. But just take a step back and be careful because just because right now you’re happy, this may cost you twice as much in the future down the road. So highly encourage you guys to be careful out there. Many of these companies are going to lie about eligibility requirements. They refuse to provide any documentation to you as far as how they calculated your credit. That’s definitely a red flag. They should have supporting documentation, because if you get audited, you have to present this type of information. You’re not the one preparing it. They are. They need to show how they calculated it. If they’re unwilling to do that, stay away. This is a really important one here. A lot of them are using this credit as a ploy to steal the taxpayer’s identity. We know that happens a lot. Identity theft is a very big problem. This is yet another door for them to come in and try to do something like that. Also, they’re trying to take a cut of your credit because they’re going to charge you a percentage of whatever you get back.
Bottom line, you do have a lot to lose. They have a lot to win and you have a lot to lose because even if they penalize them as prepares, you’re the one having to pay the credit back along with the penalties and interest. Definitely, you are going to get the shorter end of the stick as the taxpayer. Again, I can’t say it and I can’t stress it enough. Be careful, all right? How can you avoid this? What are some steps you can take to avoid the dangers that are out there? Well, number one is call a tax professional, any one of them. But we’d love you to call us. Our phone number is 407-344-1012. We’ll offer you a free 15-minute consult just to get an idea of what your situation is. If you do qualify and if you do, then we could go in deeper and we can explain how we provide this service and what’s in it for you. We’re definitely out to take care of our clients. That is our priority. I think if you look at our reviews, you see that there is a precedent already. Here at Freedom Tax and Freedom Group, we care about our clients.
It’s not just a job that we’re doing momentarily. We are in this with you for as long as you want to have us. Definitely, this moves on to point number two. Go with somebody that is reputable that if you could go buy a referral even better, somebody who’s already used the company before, look at their background, look at not only their reviews, but look at their rating on Better Business Bureau or just do a little bit of investigative work and see how long this business has been around and what their success rate is and what people out there have to say about them. Another thing you can do is request documentation regarding how they’re qualifying you, regarding how they calculated the credit. Don’t take no for an answer. You need this before you are to sign off on anything. Don’t apply unless you legitimately believe and know that you are qualifying for this credit. If you have any questions, like I said, call us 407-344-1012. My name is Carmen. I’m the person that handles the ERTC cases here at Freedom Tax, and we would love the opportunity to be able to help you. So give us a call as soon as you can.
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