IRS Continues to Warn About Problem ERC refund claims
The IRS announced today a repeated effort to warn taxpayers against filing erroneous Employer Retention Credit refund claims. We agree with the IRS on this issue.
For almost all farmers, the only way you can qualify for this credit (which can be up to $26,000 per employee) is if you had a reduction in gross receipts of at least 20% in a quarter in 2021 versus the same calendar year 2019 quarter. In 2020, the reduction needed to be at least 50% for any quarter.
Several promoters are pressuring farmers to file for ERC refunds when they likely do not qualify. They typically claim that supply chain issues automatically qualify you for the credit. This is not correct.
However, if on an aggregated basis (adding all items of income together including certain related party entities) you did have the decrease in gross receipts, then by all means go ahead and file for the refund. Most of these promoters want either money up front or a large percentage of the refund as their fee. This is excessive. You will find many other qualified companies that can do these claims on a cheaper basis and are more “reputable”.
Also, most of these promoters do not clarify that you must reduce your wage expense by the amount of the credit, and you must file an amended tax return to report that change in the year of the credit claim (2020 or 2021, not 2023) and wages that you used for the PPP loan forgiveness cannot be claimed for the credit.
If you feel that you have been misled by one of these promoters, make sure to discuss it with your tax advisor. If you ignore it and the IRS determines you filed an invalid claim, you will owe back taxes, interest and penalties plus be out the fee paid to the promoter.
I listen to a couple of business podcasts that have one of these promoters as a sponsor and I cringe every time I hear the advertisement.
You have until April 15, 2024 to file a claim for 2020 and April 15, 2025 to file a claim for 2021.