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Businesses that mistakenly claimed the Employee Retention Credit (ERC) have until March 22 to utilize the IRS’s Voluntary Disclosure Program. The IRS advises employers to review their ERC eligibility and rectify any errors voluntarily to avoid penalties and interest. (IR 2024-39, 2/13/2024).

The ERC is a pandemic-era tax credit for employers who continued paying their employees during the COVID-19 emergency. To qualify, businesses must have operated a trade or business with employees receiving wages between March 13, 2020, and December 31, 2021. Eligibility also requires experiencing a decline in gross receipts during 2020 and 2021, being shut down due to a government order, or qualifying as a recovery startup business for the third or fourth quarters of 2021.

The IRS has identified several red flags indicating potential inaccuracies in ERC claims:

1. Claiming the ERC for all available quarters, regardless of eligibility or based on the presence of a government order in the area, even if operations were unaffected or voluntarily suspended.
2. Asserting the ERC for all wages paid to each employee on the payroll for every available quarter
3. Claiming the ERC due to supply chain issues.
4. Claiming the ERC for an entire quarter when operations were only partially suspended due to a government order for a portion of the quarter.

As per IRS findings, certain businesses were misguided by promoters who misrepresented or oversimplified ERC eligibility criteria. Companies that received the credit despite lacking qualification are encouraged to utilize the IRS’s voluntary disclosure program before the March 22 application deadline.