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Duped' Small Business Taxpayers Await IRS Guidance on Tax Credit, Says Advocate

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How to Fix Improper Employee Retention Credit Claims on Tax Returns

Businesses that improperly claimed the employee retention credit (ERC) for 2020 or 2021 may have to pay penalties, according to Debra Estrem, the Managing Director of Private Wealth Controversy at Deloitte Tax. Incorrect claims for refund or credit could result in the imposition of an erroneous claim for refund or credit penalty. The IRS reported that as of June 14, about 537,000 unprocessed Forms 941-X are pending, which businesses must use to amend returns to claim the employee retention credit for tax year 2020 or 2021.

Seek Immediate Guidance

According to the National Taxpayer Advocate, the IRS is working to issue guidance for filers who have improperly claimed the tax credit. Rosemary Sereti, a former senior executive at IRS and the managing director of Deloitte Tax, advised that the best approach for businesses that wrongly claimed the ERC is to admit their errors as soon as possible. Failure to do so may cost more than if businesses come forward early, as once the IRS comes to them, it is usually too late.

Come Forward First

Sereti stated that the biggest mistake for businesses is waiting for the IRS to find out their errors. The IRS is currently reviewing Forms 941-X for proper tax credit claims. However, the backlog also includes legitimate claims that are awaiting IRS processing. Businesses that realize they do not qualify for the ERC should start thinking about ways to undo this and come forward first, according to Sereti, who emphasizes the importance of early admission of mistakes.

Request an Amended Return

According to the IRS, taxpayers who need to correct errors discovered on their original tax return must file an amended return. The amended return for Form 941-X for the claim period must have been filed by the business in time to meet the three-year period from the date of the original Form 941 for that quarter. To avoid errors, businesses should provide their payroll provider with more information and request an amended return for tax relief.

Businesses that have improperly claimed the employee tax credit will be penalized. If they realize the situation themselves, they should consider taking steps to rectify their errors rather than waiting for the IRS to do so. Amending the return and seeking the assistance of an experienced tax professional could help minimize the impact of non-compliance with IRS rules. It is important for businesses to listen to the experts and ensure they are staying on the right side of the tax law.
Starting a new business can be a daunting task, especially when considering the various taxes and credits that need to be managed properly. Improper claims for the employee retention credit (ERC) could result in the imposition of penalties, putting new businesses at risk of incurring additional costs and financial difficulties. It is critical that businesses seek immediate guidance and come forward first if they realize they have made errors in claiming the credit. Businesses should also ensure that they are providing their payroll provider with all the necessary information to avoid errors and non-compliance with IRS rules.

The consequences of improperly claiming the ERC should not be overlooked by new businesses, as it highlights the importance of compliance when it comes to taxes and credits. Early admission of mistakes and amending returns can help minimize the impact of non-compliance. Seeking the assistance of an experienced tax professional can also be helpful in navigating the complexities of tax law. Overall, new businesses must stay informed and up-to-date to maintain compliance with IRS rules regarding employee retention credits to avoid costly penalties.

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