Seven Warning Signs of Incorrect Employee Retention Credit Claims

The Internal Revenue Service (IRS) recently published a notice listing seven warning signs of incorrect claims for the Employee Retention Credit (ERC). This notice provides an overview and explanation of each warning sign and reminds employers of two special programs that provide relief if the ERC was improperly claimed—the Special Withdrawal Process and the Voluntary Disclosure Program, each of which have particular rules and requirements.

In general, the Special Withdrawal Process allows an employer to withdraw a claim for ERC before receiving the credit, while the Voluntary Disclosure Program allows an employer to pay back a portion of an ERC. Participants in the Voluntary Disclosure Program may avoid interest and penalties and receive a discount on repayments.

Importantly, the deadline to participate in the Voluntary Disclosure Program is Friday, March 22, 2024.

Below are the seven warning signs provided by the IRS:

Too many quarters being claimed;
Government orders that don’t qualify;
Too many employees and wrong calculations;
Business citing supply chain issues;
Business claiming ERC for too much of a tax period;
Business didn’t pay wages or didn’t exist during the eligibility period; and
Promoter says there’s nothing to lose.

These topics are covered in more detail in this IRS Press Release.

Determining eligibility for ERC and navigating these IRS programs is a technical and complex process. If you filed for ERC and are now considering participating in the Voluntary Disclosure Program (or Special Withdrawal Process), the attorneys at Dvorak Law Group are available to review your facts and circumstances and applicable governmental orders to assist in your decision-making process.