Do you need to amend your 2020 tax return for the 2020 ERC?

Many questions arise when it comes to 2020 tax returns for 2020 ERC. Here are some questions and solutions:

Question

The IRS requires that the employer amend the 2020 tax return for the employee retention credit (ERC). Here is an employer’s situation to help you understand.

The deal: The employer doesn’t have the credit yet. The IRS stopped processing ERC claims from September 14, 202, through at least December 31, 2023, and the claim was filed between these dates. Though the employer is sure to get it, it may not be until November or December. The sum is a significant $500,000.

The problem

• The statute of limitation on my employer’s 2020 federal tax return expires May 17, 2024.

• The employer may not receive the money, so he does not want to amend the 2020 tax return and pay additional taxes to the IRS. Moreover, he does not have the funds to spend some taxes on a presumptive $500,000 on extra 2020 taxes.

• Moreover, if he receives the money after May 17, 2024, the statute of limitation will preclude the amended return, and he will have the $500,000 tax-free. However, this could be unfair to the government.

Answer

There are no options. The road map is as follows: Section 2301(e) of the CARES Act says you can apply IRC Section 280C (a), which tells you to reduce the 2020 wages by the ERC calculated for the 2020 year. The employer should have reduced the 2020 wages by $500,00 when you filed Form 941-X claiming the ERC to simplify it, but he did not ! Now, little time is left with the Statute of limitation expiring on May 17, 2024. If the employer had filed a 2020 tax return later than May 17, 2021, says he filed it on September 1, 2021, then he has time till September 1, 2024, to file his amended return.

Cash Problem

Since the employer says he is not flush with funds, he may have to borrow from the bank or friend or enter a payment agreement with the IRS.

Protective Claim

The employer has to protect himself in case the IRS rejects the claim. The protective claim can help. If you do not receive the $500,000 ERC or get a lesser amount, then the employer can amend the return to increase the wage deduction and obtain a refund.

What about Corporations and Partnerships?

The IRS did not extend the 2020 filing dates for corporations and partnerships from their original due dates of either March 15 or April 15.

Some businesses may have filed on time and missed the CARES Act requirement to amend their 2020 returns for the reduced wages. In this case, the failure to reduce salaries after the credit was calculated was intended to evade or defeat the tax, and the statute of limitations does not apply. The IRS can credit collection action at any time.

If the corporation or partnership filed an extension, it may have the time to amend the 2020 returns for the ERC wage reduction and file a protective claim. In these cases, the extended date on which the return was filed triggers the end of the statute of limitations.

Takeaways

Deadline for Schedule C business: If the company reported on Schedule C of your Form 1040, claimed the ERC for 2020 and did not adjust the 2020 wages accordingly, then the business must amend the 2020 tax return before the deadline expires on May 17, 2024, or later if you extended your 2020 return.

Deadline for corporations and partnerships: Those that filed 2020 returns with extensions have until the extended file date to file their amended returns and protective claims. For those who filed on time or where the statute of limitations expired, failing to have the correct 2020 wages on 2020 returns could lead to IRS action if it was intended to evade taxes.

Cash: If the employer doesn’t have the cash to cover the additional taxes, consider borrowing or entering into an IRS payment agreement.

Protective claim: To protect against the possibility of not receiving the ERC or receiving less than expected, file a protective claim. The claim creates insurance that you will achieve proper tax and money results when the ERC is resolved.