Officials at the Internal Revenue Service (IRS) announced today that the agency will temporarily pause the processing of Employee Retention Credit (ERC) claims until at least December 31, 2023, due to rising concerns about a flood of improperly claimed credits. This ERC processing pause follows several previous IRS warnings about ERC scams perpetrated by pop-up companies, or “ERC mills,” conning ineligible businesses to claim the credit.
The ERC provides businesses that continued to pay employees during the height of the COVID-19 shutdowns with an opportunity to recover significant payroll taxes paid during that time. Business owners can continue to submit their valid tax amendments claiming the ERC, but the IRS will not process them until 2024, at the earliest.
Congress Weighs in on the ERC Processing Moratorium
On October 3rd, members of the House Ways and Means Committee sent a letter to IRS Commissioner Daniel Werfel raising concerns about the ERC moratorium and its impact on business owners. “While we appreciate efforts to protect taxpayers from scams, the announced moratorium will exacerbate wait times, worsen the existing backlog of claims, and prevent taxpayers with legitimate claims from receiving payments…it remains to be seen what changes will be made during the moratorium to improve vetting measures for fraudulent claims while also making the processing time more efficient to lessen the backlog,” wrote Jason Smith, R-Missouri, and David Schweikert, R-Arizona.
As of August 16th, the IRS website showed a backlog of over 521,000 Forms 941-X, the tax amendment form used to claim ERC retroactively, according to the Accounting Today story.
Business owners who meet ERC eligibility requirements should not have to miss out on tax refunds they’ve earned because of the scams carried out by dubious ERC mills. There is still an avenue to receive the credit while stringently following IRS guidelines. As a business owner, you want to claim the maximum ERC refund available to you while strictly adhering to the tax code.
Likewise, business owners who have already claimed the credit can ask a few questions to help determine if their ERC provider is an honest and diligent company—or a shady ERC mill. Here are five key questions to ask amid the IRS ERC processing pause.
Five Questions to Ask Your ERC Provider During the IRS Processing Pause
1. Did Your ERC Provider Thoroughly Substantiate Your Eligibility?
Legitimate ERC companies do more than just fill out tax amendment forms. They build documentation that demonstrates why your business is eligible to receive ERC. They prepare exhaustive evidence showing your business meets the eligibility requirements in each quarter you claim the credit. The best ERC companies will even provide the evidence in a report that you can reference if your company ever needs to substantiate your claim before the IRS.
At Omega Accounting Solutions, we support each ERC claim by building thorough documentation of the business’ eligibility—all the way down to the local level. Every qualification analysis is tailored to the client, with our team of experts, including a legal analyst, an associate, and a case processor working to ensure the client’s interests are served. We never rely on simple one-size-fits-all approaches to the client’s eligibility. Once our qualification analysis is complete, the credits have been calculated, and amended tax returns have been filed with the IRS, we furnish a complete ERC Substantiation Report to each client that outlines and supports the claim for future reference.
2. Did Your ERC Provider Adhere Strictly to IRS ERC Rules?
ERC mills don’t utilize a rigorous eligibility framework when they evaluate your qualification to claim the credit. Instead, they set low eligibility standards so they can “qualify” as many businesses as possible. The problem is, as the IRS continues to monitor for ERC fraud, many clients of ERC mills may become subject to ERC audits. Many of those businesses will likely have to repay their ERC refunds, with penalties and interest because the claims were not properly qualified or substantiated.
Not every business will meet official ERC eligibility requirements set forth by the IRS. At Omega, we are not afraid to tell a client they are ineligible. Our cautious approach helps protect our clients from improperly claiming credits they are not entitled to. Our ERC service is free of any upfront fees, so when we find a client ineligible, they pay no out-of-pocket costs.
3. Does Your ERC Provider Continually Update Qualification Guidelines?
Many tax credits have a long history of eligibility precedents, making the qualification requirements plain and obvious. Established in 2020, the Employee Retention Credit is still a relatively new government program. There is no comprehensive database of case law, leaving some matters of qualification open to interpretation. As the government continues to release more information on eligibility rules, the best ERC providers are diligently updating their qualification processes to ensure they remain in compliance with IRS rules.
At Omega, we routinely re-evaluate our qualification and compliance positions to ensure we provide our clients with the most up-to-date, safest, and exhaustive analysis. In early 2022, our in-house team of experts found that businesses claiming ERC eligibility due to supply chain disruptions were in many cases, unfounded. Accordingly, we no longer qualify our clients through supply chain disruptions, with very few exceptions.
4. Did Your ERC Provider Sign Your Amended Tax Returns?
ERC companies that do not sign your payroll tax amendments are unlikely to be certified by the IRS. To protect yourself, you should seek a tax professional who is registered with the IRS to prepare and sign your tax returns, as they are held to certain standards by the government. ERC companies that did not sign your amended payroll tax return are unlikely to be IRS-certified return preparers.
We are registered with the IRS to sign Form 941-X as a paid preparer. We employ a team of licensed professionals with Preparer Tax Identification Numbers (PTIN) who complete and sign each tax amendment form. Our in-house attorneys and CPAs manage our qualification analyses, while experienced Senior Accountants approve all credit calculations. Each step in our ERC process is led by credentialed professionals recognized by the IRS.
5. Does Your ERC Provider Have a Long Track Record of Success?
Hundreds of “ERC pop-ups” have begun processing Employee Retention Credits in the past year or two. Startups like these have little experience processing tax credits and may be unregistered with the IRS. They may also lack the security measures needed to protect the sensitive information on your business’ tax documents. When searching for the best company for ERC credit filing, look for an experienced provider with a long service history to protect your company from making an invalid ERC claim.
Omega draws upon over 15 years of experience with various tax credits to handle the ERC process with accuracy and integrity. Our clients upload all required tax documents to our online portal secured by the latest security measures, including an AES 256-bit encryption algorithm. Since 2007, Omega has been a trusted advisor to more than 20,000 small to medium-sized businesses.
How Omega Is Helping Victims of ERC Mills
Omega strives to set the highest standard for honest and accurate ERC processing. We have also developed a highly curated and thoughtful mix of services designed to help business owners who may have been misled by ERC mills. Please reach out to Omega for help during the ERC processing pause.
ERC Compliance Review
If you’re uncertain about the validity of your ERC claim, Omega can provide an expert review to determine if your previous provider made an IRS-compliant filing. Through our Tax Controversy Practice Group, the Tier 1 ERC Compliance Review service provides a comprehensive analysis of your existing Employee Retention Credit claim, assessing its compliance with IRS rules and identifying any potential liabilities or errors. You will receive a detailed report highlighting any potential risks in your ERC claim.
If it is determined that your ERC claim was filed in error or was not fully qualified under the strictest standards of review, Omega also offers a Tier II ERC claim service through which we fully re-analyze and recalculate your claim. If necessary and appropriate, we will further assist you in either amending your claim with the IRS, withdrawing your claim, or, in some cases, in making arrangements with the IRS to repay any refunds you have received in error.
Additional Tax Controversy Services
Omega offers tax controversy services to support businesses, whether with respect to ERC claims or other issues. Our group will support or represent you in most IRS disputes, including complete audit defense through the Appeals level, pre and post-filing review and advice, review and support for tax credit and incentives claims, collection issues, and other matters occurring before the IRS.
ERC Advance Loans
The ERC processing pause will certainly create a significant delay for business owners expecting their ERC refunds. To help alleviate this delay, Omega also offers ERC advance loans through our sister organization, Omega Funding Solutions (OFS). OFS can help provide much-needed cash flow with an ERC bridge loan based on your anticipated refund—whether you filed your ERC with Omega or not. Before approving your loan request, Omega Accounting Solutions will review your existing ERC claim to ensure that your business is truly eligible for every credit you claimed, providing extra security for business owners who may fear their provider was an ERC mill.