The Internal Revenue Service announced this week yet another way for taxpayers to address incorrect Employee Retention Credit (ERC) claims. The agency announced it is opening a “supplemental claim process” to help third-party payers (TPPs) and their clients resolve incorrect claims for the ERCs.
This means that TPPs, such as professional employer organizations and others who handle payroll and tax reporting for multiple clients, can resolve and withdraw individual ERC claims if their client has learned they are not eligible. In these cases, the TPP is responsible for correcting and resolving the claim for their client. The supplemental claim process provides a means for TPPs who filed a claim on behalf of multiple clients to withdraw only some clients without affecting the claims of qualifying clients who wish to continue to pursue their ERC claims.
According to the IRS, a supplemental claim is an adjusted employment tax return that allows a TPP to correct and/or consolidate previous claims they filed on or before Jan. 31, 2024, if the IRS has not yet processed them.
By filing a supplemental claim, the TPP is asking the IRS not to process outstanding adjusted employment tax returns for the respective tax period. The IRS will treat claims filed before the supplemental claim as if they were never filed.
The supplemental claim process is for third-party payers to which all of the following apply:
- The TPP has filed one or more claims aggregating Employee Retention Credits for itself and/or clients using the TPP’s Employer Identification Number.
- The TPP made the claim on an adjusted employment tax return (Forms 941-X, 943-X, 944-X or CT-1X).
- The IRS has not processed any of the claims the TPP is including in the supplemental claim.
In announcing the program, IRS Commissioner Werfel stated that “[a]s we continue to accelerate and intensify out work in this area to help qualifying small businesses and protect against improper claims, we continue to explore and develop additional ways to speed our work on this incredibly detailed credit where the number of claims exploded following aggressive marketing.” The supplemental claim process is “a critical step to improve the IRS’s ability to process [ERC] claims for this more complex segment of taxpayers” noted Commissioner Werfel.
TPPs can submit a supplemental claim using a computer or mobile device to fax the documents by 11:59 p.m., Nov. 22, 2024.
The supplemental claim process is separate and distinct from other initiatives the IRS has announced over the past several months for resolving ERC claims, such as the ERC voluntary disclosure program and the ERC withdrawal program.
The IRS continues to recommend that, due to the complexity tax issues surrounding ERC claims, it is important to enlist the help of a trusted tax professional who can guide you through this process.
ERC Background
The ERC, created under the CARES Act to assist businesses that continued to pay their employees during the COVID-19 pandemic, is a refundable tax credit that allows employers to offset their employment taxes against a percentage of qualified wages paid to employees. Eligible taxpayers can claim the ERC on an original or amended employment tax return for an eligible period between March 13, 2020, and December 31, 2021. To qualify for the ERC, a business must meet one of the following three criteria:
- Experienced a full or partial suspension of operations resulting from a government order issued due to the COVID-19 pandemic during 2020 or the first three quarters of 2021;
- Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021;
- Qualified as a recovery startup business for the third or fourth quarters of 2021 as defined in Notice 2021-49.
Since October 2022, the IRS has been warning taxpayers to be wary of dubious ERC schemes. Last March, the IRS issued IR-2023-49, placing abusive ERC schemes at the top of its 2023 list of “Dirty Dozen” transactions. In September 2023, the IRS imposed a moratorium on processing ERC claims.
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