ERC, to Self-Report, or not to Self-Report, that is the Question

The government developed the Employee Retention Credit (ERC) program to help businesses impacted by the COVID-19 pandemic. The Internal Revenue Service (IRS), who oversees the ERC program, set rules to make sure that only eligible businesses could receive this credit. The ERC program has been complex and has undergone changes and updates, which has made it challenging for entities to keep up with the latest guidance and requirements.

These complexities have created a market for service providers to assist entities with compliance with ERC in exchange for a fee. Eligibility considerations related to ERC can be confusing. There are varying opinions provided by service providers. This is a tricky situation, as service providers have a significant role to play in helping businesses navigate the ERC program and claim the credit if they are eligible. However, certain service providers may have taken more aggressive positions concerning eligibility.

As a result, the IRS was concerned that businesses might try to cheat the system and claim the credit when they were not eligible. They warned that they would be watching closely and would be conducting audits to make sure that businesses were following the rules. They also warned that ineligible businesses may be subject to penalties and interest, or even criminal prosecution.

I take comfort by looking to Socrates who said, “I am the wisest man alive, for I know one thing, and that is that I know nothing.” So, when it comes to the ERC program, I am not confused, I am “wise.” Well, I am being a “wise guy.”

On December 21, 2023, the IRS (via IR-2023-244) announced a voluntary disclosure program for employers who received ERC funds and no longer believe they are eligible. Self-reporting is required by March 22, 2024.

The IRS is allowing entities to self-report and repay 80% of the credits received if they feel based on the latest information, they may have received ERC in error. It also requires that the entity report what service provider they used. This may be an opportunity for certain entities to avoid penalties and interest.

While service providers can be a valuable resource for businesses in need of ERC assistance, it is important to remember that eligibility considerations related to ERC can be confusing, and it is the entity’s responsibility to comply with the requirements of the ERC program. Businesses should be cautious of aggressive positions concerning eligibility and should be prepared to self-report and repay credits received in error if necessary. 

Feel free to contact us if you need assistance navigating these complexities.