Improper ERC Claim? Pay Back 80% of the ERC and Keep the Rest

If you have made an improper employee retention credit (ERC) claim, received improper cash, and put that improper cash in your bank account, now, because your claim is wrong you can return 80 percent of the credit and keep the remaining 20 percent, including interest. The good news is you get 20 percent tax-free and the interest is calculated for the 100 percent; interest received is, however, taxableSo, isn’t that a super deal?

Why is the IRS doing this?

By getting the 80 percent back, the IRS gets the names of the tax preparers, payroll processing companies, and ERC scammers who are participants in helping you file a wrong claim.

Why 80 percent?

This is because you paid a percentage fee for the help with an improper ERC claim and therefore you never received the full amount of the credit, hence 80 percent.

File now, there is no time

To start with, you must request for a $0 ERC claim before March 22, 2024 midnight. This can be done using IRS Form 15434 electronically. The IRS reviews the application package and sends a letter on the status of your application. If your application is accepted, the IRS mail a closing agreement, which you should sign and return within 10 days of the date of mailing by the IRS.

Multiple 80 percent repayments can be done using Form 15434 using EFTPS and these payments should be made at the same time. You finish by signing the closing agreement.

Steps to follow for the 80 percent payback detail

Complete the IRS Form 15434
Wait for the acceptance or rejection letter. Once accepted wait for the closing agreement
Sign and send the closing agreement to the IRS
On the day of sending the closing agreement, make multiple 80 percent payments through EFTPS

Don’t pay the money before you get the closing agreement. Your money is held up with the IRS still the claim is processed and there are possibilities your claim may be rejected since you paid upfront, the money is held with IRS. If the application is rejected, the IRS will offer potential solutions.

2020 ERC

If your 80 percent return application of your total ERC includes any tax period in 2020, include a completed, signed ERC-VDP Form SS-10 consenting to an extended time for the IRS to examine your employment taxes for the year 2020. This is because, the statute of limitation for claiming the 2020 ERC expires on April 15, 2024.

Short of Cash

If you are running short of money and cannot pay the 80 percent, you can avail of the instalment agreement. To avail of the instalment option, you may have to pay penalties and interest from the agreement date forward.

What are the tax implications?

Entering into the 80 percent deal you claim $0 ERC. The 20 percent of the ERC you retain can be treated as a tax-free income, and either do nothing if you have not reflected the ERC on any proper income tax return or amend original or amended returns if you reflected the ERC on them. Though, the IRS does not say whether the interest is taxable or not, it is likely to be taxable.

Should you opt for the 80 percent?

First check, if your ERC claim is valid. There are chances that small businesses qualifying for ERC claims mistakenly do the 80 percent deal to their detriment. Before plunging into action confirm if the claim is valid or invalid.

Criminal Aspect

IRS does not stop investigating any criminal activity or recommending prosecution for violation of any criminal statute and does not provide immunity from prosecution just because you have executed the 80 percent closing agreement.

Takeaways

IRS allows you to recent the 20 percent of the improper ERC claim. The 20 percent is tax-free and you keep the interest that is also tax-free. The 80 percent has to be given to the IRS.

To avail of this offer you must provide the details of the tax preparers or firms that improperly assisted you.

File the IRS form 15434 by March 22, 2024, wait for the response, and pay 80 percent. Installment payment is also available.

First determine the validity of your ERC claim, if any miscalculation, the exercise would be futile.