Taxpayers can still submit Employee Retention Credit (“ERC”) claims for certain quarters until April 2025, but attention has largely shifted from filing claims to defending them. The IRS has started taking many steps to challenge companies claiming ERCs, including placing a “moratorium” on processing new ERC claims, subjecting existing claims to “enhanced compliance reviews,” announcing an upcoming “settlement program,” and launching thousands of civil audits and criminal investigations. The IRS has introduced several other procedures to identify and penalize anyone promoting improper ERC claims.

Hale Sheppard, an attorney representing those facing IRS attacks, has published a long series of articles addressing different aspects of ERC claims and disputes.

You are welcome to read the articles here, free of charge, or listen to the articles on your favorite Podcast platform by searching "Prose by Tax Pros".

Analyzing Congressional and IRS Guidance from Start to Finish

The U.S. economy is humming along, a major disruption occurs, Congress introduces tax incentives to stabilize matters, the IRS provides guidance to implement them, some taxpayers exploit voids and ambiguities, and the IRS takes actions to halt perceived abuses. This is a timeless tale that has recently centered on the Employee Retention Credit. To understand the inevitable clashes, one must first appreciate the applicable rules. These are complicated, of course, deriving from several laws passed in rapid succession and administrative guidance issued on their heels. This article explores the ERC rules from start to finish.

Analyzing Key Issues for
Taxpayers Facing IRS Audits

This article explains the reasons why Congress introduced the ERC, four laws and IRS guidance, periods during which taxpayers can still claim ERCs, initial problems detected by watchdogs, series of IRS warnings, training materials for audit personnel, consequences for taxpayers filing excessive claims, and extended assessments periods. In short, the goal of this article is to supply substance for taxpayers and advisors as the IRS implements enforcement actions.

Analyzing Key Issues for
Promoters and Other Enablers

It is obvious that the IRS has been scrutinizing, and will continue to pursue, those that it considers “promoters” or “enablers” of improper employee retention credit (“ERC”) claims. What is not apparent, though, is the wide range of tools at the IRS’s disposal and how they might affect not only the targets, but also the taxpayers who relied on them. This article summarizes the main ERC rules, clarifies how long ERC claims will continue, identifies imminent enforcement actions, and explores a long list of weapons that the IRS likely will use, some common, others obscure.

What the IRS Didn’t, Did,
and Might Do

The IRS recently imposed a “moratorium” of at least three months on processing future ERC claims. The IRS made several other important announcements, too including the start of “enhanced compliance reviews” on all ERC claims, a “special withdrawal option” for taxpayers with pending yet unpaid claims, and a future “settlement program” for taxpayers that previously received ERCs but did not really deserve them. This article explores these recent IRS actions, fitting them into the broader context of ERC events over the past three years and into the future.

Mastery of Procedural and
Substantive Rules Required

Taxpayers and their advisors are raising many procedural questions: Has the IRS created special procedural rules for ERC cases? How long does the IRS generally have to audit ERC claims? Do extended assessment-periods apply to claims for certain quarters? What examination techniques will the IRS use? What methods can taxpayers utilize if the IRS rejects or ignores their ERC claims? Which courts will have jurisdiction over ERC litigation? Can the interplay between employment taxes and income taxes cause taxpayers to get “whipsawed” by the IRS? This article, the latest in a multi-part series, explores these critical questions and others.

Issues Arise as
Finger-Pointing Begins

In life, things often are going great, until they are not. This is true in the tax world, too. Congress introduced the employee retention credit in early 2020 to assist businesses struggling because of COVID. Things started positively, but they changed when the IRS began identifying significant numbers of aggressive or fraudulent claims. The IRS increased enforcement efforts. This scrutiny has already triggered finger pointing in various directions, with more on the way. This article explains the congressional and IRS guidance regarding ERCs, deadline for making claims, potential consequences facing taxpayers and advisors engaged in improper behavior, and obscure issues sparked by two recent ERC events.

Reasons for Prolonged Claims

Congress introduced the employee retention credit back in March 2020, some taxpayers are still making ERC claims today, and others have the ability to do so until April 2025. Some ask, for example, why taxpayers with legitimate ERC claims did not file them right away, on their original employment tax returns. One reason is that the IRS did not issue certain guidance until months after Congress enacted the relevant laws. Another is that some of that guidance had retroactive effect. This meant that taxpayers had to file amended employment tax returns, sometimes months or years after the fact, in order to take advantage of favorable modifications to the ERC rules. This article analyzes changes over time that have led to the continuation of ERC claims.

IRS Clarifies Limited Eligibility of
Federal Credit Unions for ERCs

You start with the macro and then move to the micro, as time permits and need demands. This method is followed in many contexts, including taxes. Congress first introduced the employee retention credit in early 2020, and then made several legislative tweaks thereafter. The IRS, likewise, issued multiple Notices over the years supplying more detail. Naturally, as time passes and unanticipated issues arise, the guidance becomes more focused, more granular. That is precisely the case with ERCs. This article summarizes the main ERC rules, prior guidance on whether governmental employers are eligible for ERCs, and a recent Chief Counsel Advice exploring the status of federal credit unions.

New ERC Guidance About Suspended Operations
and Supply Chains

Many taxpayers desperately needed an economic injection from the government to survive massive problems caused by COVID. Needing financial benefits is one thing, but qualifying for them is another. When it came to eligibility for employee retention credits, employers had to demonstrate several things, including that their total revenue dropped by a certain percentage or that a governmental mandate triggered a partial or full suspension of their business operations. The IRS is convinced that some employers are abusing the rules, relying on suspensions that did not reach the relevant thresholds. The article addresses this important issue, focusing on the impact of supply chain problems.

Comparing Consequences of Obtaining Improper
PPP and ERC Benefits

Congress realized that taxpayers desperately needed financial help during the COVID crisis, so it created the Paycheck Protection Program and the Employee Retention Credit. Taxpayers that got dual relief are beginning to understand that enforcement actions, timeframes, and consequences differ for each. This article, the latest in a multi-part series, explains the fundamentals of these benefits, interplay between the two, and distinct mechanisms used to recoup benefits that were improperly issued to taxpayers.

ERC Enforcement Tactics: The IRS’s Carrots and Sticks So Far

Congress took action to help U.S. businesses and workers economically suffering because of COVID, including creating the Employee Retention Credit. The IRS was put in charge of implementing the ERC. The number of claims filed, amounts sought, and grounds for relief far surpassed what was expected. These and other factors led to problems, among them the IRS’s struggle to administer the ERC program. The IRS has experienced challenges separating the wheat from the chaff, so to speak. Therefore, following its standard playbook, the IRS has introduced both carrots and sticks, the effectiveness of which is yet to be seen. This article summarizes the ERC laws and explores each of the IRS’s enforcement methods so far.

Comparing IRS Settlements: Easements and Employee Retention Credits

Things are dynamic when it comes to the Employee Retention Credit. Among the most recent events is the introduction of the Voluntary Disclosure Program, which is designed for taxpayers that previously filed ERCs claims, got paid, later questioned their eligibility, and now want to give the money back with minimal financial downsides. This article compares methods used by the IRS in addressing conservation easement donations and ERCs, and then presents some questions to consider.

ERC Challenges by the IRS, to the IRS, and Among Various Parties

The Employee Retention Credit is a polarizing tax benefit, but there are a few of things on which most everyone can seem to agree. First, guidance regarding the ERC is dense and complicated. Second, ERCs often involve big money, for employers who obtain them, professionals who assist in procuring them, and others. Third, parties working toward the mutual goal of submitting proper ERC claims and maximizing benefits sign agreements, the terms of which are sometimes subject to different interpretations. These three realities have converged to trigger disputes, with the IRS, and among various parties.

ERCs and Protective Amended Income Tax Returns

Lots of taxpayers are thinking about Employee Retention Credit matters these days. Most are focused on employment tax issues, but they should be considering related tax issues, too. Specifically, they might analyze how the potential reduction or elimination of ERC amounts will affect income tax returns, when such events will occur, and what should be done in the meantime. This article, another in a series by the author, explains the relevant laws, relationship between ERCs and income taxes, timing issues, and filing “protective” amended returns as a solution.

ERC Claims as Reportable Transactions? Threats, Consequences, and Defenses

Most employers seeking Employee Retention Credits focus on fundamental, immediate issues. What often escapes their minds is whether obtaining ERCs pursuant to a contingent fee arrangement might trigger special obligations with the IRS, including the duty to file Forms 8886 (Reportable Transaction Disclosure Statements) and Forms 8918 (Material Advisor Disclosure Statements). This issue is not lost on the IRS, as Revenue Agents have started inquiring about these information returns during ERC audits and investigations. This article describes the ERC legislation, relevant administrative guidance, evolution of the regulations addressing “transactions with contractual protection,” effects of reportable transaction status on employers and advisors, and more.

ERCs: Probing the Strength Of IRS Penalty Threats

The IRS is trying various methods to halt what it considers improper ERC claims, including penalty threats. Browbeating taxpayers with potential penalties is standard stuff, but it becomes particularly interesting in the ERC context, where the IRS’s ability to carry out its warnings is questionable. This article, the latest in a series, describes the evolving ERC guidance, highlights the recurrent themes of “complexity” and taxpayer “victimization,” reviews relevant penalty-mitigation standards, and suggests that taxpayers considering their next move need to determine how much weight IRS penalty threats really deserve.

How Return Preparer Fraud Could Affect Taxpayers Making ERC Claims

Everyone knows that IRS is struggling to timely process and audit Employee Retention Credit claims. What many people do not realize, though, is that the Tax Court issued a decision in January 2024 that might affect timing issues. This article discusses ERC guidance, the three-year and five-year assessment periods under current law, key Tax Court cases addressing the impact of fraud by return preparers on assessment periods of taxpayers, the broad definition of preparers, and potential effects on well-intentioned taxpayers filing improper ERC claims.

IRS Tries to Further Limit ERC Claims Under Governmental Order Test

Congress took steps to protect American businesses and workers during the COVID pandemic, such as creating the Employee Retention Credit. The IRS, tasked with implementing the ERC, issued various types of guidance. It now relies on such guidance in reviewing, and frequently denying, ERC claims. This is particularly true when it comes to taxpayers seeking ERCs on grounds that their businesses were suspended because of a governmental order. This article summarizes the main laws and analyzes multiple IRS sources regarding how to treat ERC claims based on governmental orders

Improper ERC Claims: Liability for Third-Party Payers, Employers, or Both

Employers generally are required to withhold, deposit, and remit taxes on wages paid to their employees. They are obligated to file various returns with the IRS documenting their actions, too. Many employers hire a third-party payer to handle these duties. Things often go smoothly, but issues can arise when situations get complicated. One example is when an employer files an Employee Retention Credit claim through its TPP, the IRS allows it, and then it starts looking for persons to audit. This article explains the various ERC laws and analyzes the four main sources of IRS guidance thus far about liability for tax underpayments and penalties resulting from improper ERC claims.

A Comprehensive Look at ERC Enforcement Tactics So Far

Most people are somewhat confused about Employee Retention Credit issues. This is logical given the massive amount of information, much of it inaccurate, released by various sources over the past four years. Among the aspects that escape most people are the enforcement actions taken by the IRS. Understanding these is critical because taxpayers and other parties that might end up in the IRS’s crosshairs cannot effectively defend themselves if they do not know what their adversary is doing. This article explores the major enforcement tactics used by the IRS thus far in challenging what it considers improper ERC claims.

These articles do not constitute legal advice. They are being presented for informational purposes only.

Hale's team in Atlanta consists of 25 attorneys whose sole job is defending taxpayers during IRS audits, administrative appeals, or tax litigation. We did not advise taxpayers on ERC issues beforehand, did not issue opinion letters, did not do computations or reviews, and did not assist in preparing returns. Therefore, our team does not have conflicts that prevent us from defending taxpayers.

Taxpayers can still submit Employee Retention Credit (“ERC”) claims for certain quarters until April 2025, but attention has largely shifted from filing claims to defending them. The IRS has started taking many steps to challenge companies claiming ERCs, including placing a “moratorium” on processing new ERC claims, subjecting existing claims to “enhanced compliance reviews,” announcing an upcoming “settlement program,” and launching thousands of civil audits and criminal investigations. The IRS has introduced several other procedures to identify and penalize anyone promoting improper ERC claims.

Hale Sheppard, an attorney representing those facing IRS attacks, has published a long series of articles addressing different aspects of ERC claims and disputes.

You are welcome to read or listen to all these articles here, free of charge.

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