Q&A of the Week December 13, 2023

Question

What are the main reasons an Employee Retention Credit (ERC) claim is being disallowed by the IRS?

Answer

The IRS announced they are sending 20,000 letters to taxpayers who claimed the ERC but their claim is being disallowed. The majority of these claims are disallowed for two reasons:

1. The entity was not in existence during the eligible time frame. The ERC is for qualified wages from March 13, 2020 to December 31, 2021. If an entity was established after December 31, 2021, it is not eligible to receive the ERC.

2. There were no paid employees during the eligible time frame mentioned above. If an entity did not pay wages, they are not eligible to receive the ERC.

If a taxpayer disagrees with the IRS, the taxpayer can file an administrative appeal. 

If a taxpayer wants to withdraw their ERC claim, they can follow the process indicated in this article from the IRS. The option to withdraw is available until December 31, 2023.