Employee Retention Credit and the March 22 deadline
Your business applied for the Employee Retention Credit (ERC) – was that a mistake? In a recent conversation with Stephen Cilley, the CEO and founder of Ataraxis raised crucial points and emphasized potential risks for any companies that participated in the ERC.
Initiated as part of the 2020 COVID-era recovery plans, the ERC program was designed to help businesses retain their employees during a challenging time for the marketplace. However, the extension of the program into 2021 and the emergence of fraudulent practices have raised red flags that for some, could trigger an audit from the IRS.
If your business has been involved with the ERC, here's Cilley’s breakdown of what you need to know to ensure you’re not caught up in the IRS audit net due to fraudulent ERC claims.
Understanding the Employee Retention Credit Program
At the core of the ERC program lies the intent to provide financial aid to businesses struggling to maintain their workforce amid the pandemic's economic strain. This tax credit was meant to alleviate the burden on employers by providing a credit of up to $26,000 per employee, covering the taxes paid on the employee's wages. It was part of a trio of relief programs, including the well-known Paycheck Protection Program (PPP).
Warning signs of fraud and IRS audits
Cilley highlighted the emergence of what he terms as "ERC mills" – entities aggressively pushing businesses to apply for the program, even if they may not legitimately qualify. The IRS, in response to the prevalent fraud, has initiated a freeze on the program and plans to thoroughly audit all ERC claims.
"Of the applications that [the IRS] was receiving at that time, about 95% [of what] they could see were either fraudulent or they didn't qualify."
Key dates and recommended actions
Cilley underscored the importance of businesses taking action before March 22, 2024. This critical date marks the last opportunity for businesses to retract their ERC claims without facing penalties or audits. Businesses are advised to return the funds or submit the appropriate forms to withdraw their applications to avoid potential future repercussions.
Long-term ramifications of fraudulent claims
Beyond the immediate consequences of audits and penalties, Cilley cautioned business owners about the enduring effects of erroneous ERC claims. He painted a stark picture of potential liabilities, with businesses possibly facing insurmountable financial burdens once the IRS reveals the true extent of the mismatched claims. The implications could extend over several years, leading to dire financial impacts and potential business insolvencies.
"Originally, [the IRS] said, ‘Look, we're going to audit what we feel we need to.’ But they've figured out that there's so much fraud in this program that they're going to audit every single file."
Urgent need for business awareness and action
Cilley's raising the alarm for businesses at a crucial juncture. Businesses must seek expert guidance from accounting professionals, payroll providers, or consultants to navigate the complexities of the ERC program and make informed decisions about their involvement.
Takeaways
Cilley’s warnings serve as a stark wake-up call for businesses currently involved in or considering applying for the ERC program. The urgency for businesses to assess their eligibility, understand the implications of fraudulent claims, and take appropriate action has never been more critical. The responsibility is on business owners to protect their financial well-being and safeguard their enterprises from the potentially devastating aftermath of participating in a program marred by fraud.
Please use the link above to watch our full interview with Stephen Cilley.
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