IRS sends 20,000 rejections

Back in May of this year I wrote an article called ERTC - Proceed with Caution where I gave some cautionary advice about applying for the Employee Retention Tax Credit (ERTC).  In it, I stated that if you legitimately qualified for the ERTC then you should definitely take advantage of the program.  It was created to help business owners navigate through the Covid-19 pandemic without laying off their workforce.  However, if a business didn't qualify - then I warned against using an overly aggressive ERTC company.  It was my belief that there were lots of companies out there willing to take aggressive and even false positions to get people money that they didn't qualify for.  And, as predicted, significant abuse happened with the ERTC program - effectively shutting it down. The IRS recently issued 20,000 rejection letters and plans to thoroughly review the applications that have been submitted.  The IRS also plans to create various programs for people to withdrawn their own application if they believe that they don't actually qualify.

So... if you have an ERTC application that is pending approval I'd recommend that you take a second look at it to make sure that you qualify.  If you think that you may have taken an overly aggressive position on it - then it might make sense to use one of the IRS programs to voluntarily withdraw your application.

There is a saying that I hear a lot at education events geared towards tax savings strategies.  The saying goes, "Pigs get fat, hogs get slaughtered."  It will be interesting to follow the ERTC story as it continues to develop.  There will be many more applications that get rejected and lots of money that will need to be returned to the IRS for false refunds issued to the IRS that they will require to be paid back.  Lots of hogs will get slaughtered in the process and a lot of the ERTC companies will disappear, if they haven't already.

This ERTC story is a confirmation to me of the value that a good tax professional provides.  It is important to understand the rules of all the new programs that come out so that you can take advantage of them if you qualify and keep you out of trouble if you don't qualify.

The information in this blog post is for general informational purposes only and is not intended as legal, accounting, or tax advice. Tax laws can change, and the application of information may vary. Readers are strongly advised to consult with their CPA or a qualified tax professional for personalized guidance tailored to their specific situation. This blog post is not a substitute for professional advice, and we disclaim all liability for actions taken based on its content. Always consult a qualified professional for advice on your individual tax situation and business circumstances.