Annual Federal Tax Update

This article is the part 4 of 4 in a series:

A curated list of updates to prepare you for tax season 2023

The Internal Revenue Service (IRS) has recently implemented a significant change regarding the Employee Retention Credit (ERC), a pandemic-era relief program aimed at supporting small businesses. This program provides a tax credit based on the wages paid to employees. However, due to concerns about a surge in improper ERC claims, the IRS announced an immediate moratorium on processing new claims for the ERC. This moratorium, effective from September 14, 2023, is intended to last at least through the end of the year 2023. The primary purpose of this action is to safeguard honest small business owners from fraudulent activities and scams associated with the ERC program​​​​​​​​.

It’s important to note that while new ERC claims will not be processed during this moratorium, existing ERC claims that were filed prior to September 14, 2023, will continue to be processed. However, the processing time for these existing claims is expected to be significantly delayed​​. This update is particularly relevant for businesses and tax professionals who are involved in or planning to engage with the ERC program.

The Voluntary Withdrawal Program for the Employee Retention Credit (ERC) claim is an initiative offered by the IRS that allows taxpayers to voluntarily withdraw their previously submitted ERC claims. This program is relevant in scenarios where businesses or taxpayers have filed ERC claims but later determine that they may not meet the eligibility requirements or wish to avoid the potential for an IRS audit and associated penalties.

Here are some key aspects of the Voluntary Withdrawal Program:

Avoiding Scrutiny and Penalties

This program is particularly beneficial for businesses that are unsure about the legitimacy of their ERC claims. By voluntarily withdrawing these claims, they can avoid the risk of an IRS audit and potential penalties if the claim is found to be invalid or erroneous.

Process of Withdrawal

 Taxpayers who wish to withdraw their ERC claims need to follow specific procedures outlined by the IRS. This typically involves notifying the IRS of their intent to withdraw the claim and providing necessary documentation to support the withdrawal.

Eligibility for Withdrawal

 Generally, any taxpayer who has filed an ERC claim and later wishes to retract it can opt for the voluntary withdrawal. This is especially pertinent for claims that might have been filed based on aggressive interpretations of the eligibility criteria or where the business’s circumstances have changed.

Impact on the Business

 Withdrawing an ERC claim means that the business will not receive the anticipated tax credit. However, this action can be a strategic decision to mitigate the risk of penalties and interest that could accrue if the IRS later determines the claim was not valid.

Consultation with Tax Professionals

Given the complexities involved in the ERC program and the potential implications of withdrawing a claim, businesses are often advised to consult with tax professionals or CPAs to make an informed decision.

For specific details or to initiate a withdrawal, it’s recommended to consult the IRS guidelines or seek professional tax advice, as the procedures and implications can vary depending on individual circumstances.

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