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Managing ERC Claim Reversals and Repayments

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    The Employee Retention Credit (ERC) is a tax credit designed to support businesses affected by the COVID-19 pandemic by providing financial relief for retaining employees. Eligible employers can claim a refundable tax credit against certain employment taxes. The ERC aims to incentivize businesses to keep employees on their payroll during periods of financial uncertainty.

    If you realize you do not qualify for the ERC you claimed, you can withdraw it by following specific procedures outlined on the Internal Revenue Service (IRS) website. Alternatively, if you have already received the credit but were not entitled to it, then you may consider participating in the IRS’ ERC Voluntary Disclosure Program (ERC-VDP) to repay the credit with certain benefits.

    If you need help resolving your tax issues, get support from our Dual-Licensed Tax Lawyers & CPAs by calling the Tax Law Offices of David W. Klasing today at (800) 681-1295 or visiting us online to book a reduced rate initial consultation.

    Withdrawing an Employee Retention Credit

    If you claimed an Employee Retention Credit (ERC) and later realized you do not qualify, then you may withdraw your claim before receiving the actual credit. There are several steps to the withdrawal process.

    Eligibility for ERC

    To qualify for the ERC, your business must have experienced either a partial or full suspension of operations because of government orders related to the COVID-19 pandemic. Specifically, you must have suffered a decrease of 50% or more in gross receipts compared to the same quarter in the previous year.

    Withdrawal Procedure

    The withdrawal procedure varies depending on whether you filed your ERC claim yourself or through a professional payroll company. If a payroll company handled your claim, then they may be able to assist you with the withdrawal. Alternatively, if you filed the claim independently, then our Dual-Licensed Tax Lawyers & CPAs will help fax your request to the IRS.

    If you’ve received a refund check but have yet to cash it, you can still withdraw your claim by mailing a voided check along with your withdrawal request.

    If you are subject to an audit, you will need to submit the withdrawal request to the assigned examiner or respond to the audit notice accordingly.

    Impact of Withdrawal

    Once the IRS processes and accepts your withdrawal request, your ERC claim will be treated as if it were never filed. As a result, penalties and interest will not be imposed.

    Still, it is important to note that withdrawing a fraudulent ERC claim does not exempt you from a potential criminal tax investigation. You can still be assessed criminal penalties for such misconduct.

    Confirmation of Withdrawal

    After submitting your withdrawal request, the IRS will send you a letter confirming whether your request has been accepted or rejected. Your withdrawal request is considered approved once you have received the acceptance letter from the government.

    If your withdrawal request is accepted, you may need to reamend your income tax returns accordingly if you previously amended prior year returns to reduce payroll expense in anticipation of receiving the ERC. That way, you can ensure that your filings are accurate and potentially receive a refund if additional taxes were paid with the original amended returns.

    ERC Voluntary Disclosure Program

    The ERC Voluntary Disclosure Program (ERC-VDP) offers a solution for businesses that have received the ERC but were not entitled to it. The ERC-VDP allows the IRS to secure repayments while wrongful claimants suffer minimal penalties.

    Advantages of ERC-VDP

    Under the ERC-VDP, your business is required to repay only 80% of the ERC it received on its return or as a refund. The leftover 20% will not be considered taxable income. Additionally, you will not be obligated to repay any interest received on the ERC.

    Furthermore, after enrolling in the ERC-VDP, you will receive assurance that the IRS will not examine claims for the resolved tax periods.

    Application Process

    To participate in the ERC-VDP, your business must apply through the IRS. The application process involves submitting necessary documentation and details about the wrongful ERC claim. After receiving the application, the IRS reviews it to verify your business’s eligibility for the program.

    Why Disclose Unreported Income to the IRS?

    Voluntarily disclosing unreported income to the IRS can be a proactive step for individuals to address tax compliance issues. There are several reasons why you may want to make a voluntary disclosure.

    Preventing Legal Trouble

    If you intentionally evaded your tax obligations, then you may face criminal tax prosecution. By voluntarily disclosing unreported income, you may demonstrate a willingness to comply with tax obligations and mitigate the risk of facing criminal tax charges.

    Proactively Resolving Tax Issues

    Addressing ERC noncompliance voluntarily also allows you to take control of your tax situation and resolve any issues proactively. In turn, you may prevent future complications and uncertainties stemming from your unresolved tax obligations.

    Preserving Financial Reputation

    Maintaining honesty and integrity in financial matters is crucial. By voluntarily disclosing your information you may avoid a detrimental hit to your reputation.

    What Methods Does the IRS Use to Catch Tax Evaders?

    Many perpetrators of tax evasion schemes do not fully understand the multitude of ways in which they can be caught. The following is an overview of some methods the IRS uses to uncover instances of tax evasion:

    Data Analysis

    The IRS utilizes sophisticated data matching and analysis techniques to compare information reported on tax returns with data obtained from third-party sources. Discrepancies or inconsistencies identified through data analysis can trigger further investigation into potential tax fraud.

    Sharing Information

    The IRS also collaborates with other government agencies to share information and intelligence regarding potential tax evaders. By sharing resources, the IRS can uncover complex schemes that may not have been identified using their information alone.

    Performing Audits

    During a tax audit, the IRS will perform a comprehensive review of a taxpayer’s records and financial transactions to determine if they are following U.S. tax laws.

    The IRS may conduct audits randomly. However, audits may also be triggered by unusual deductions and discrepancies in reported income.

    Contact Our Attorneys Today for Help with Your Tax Problems

    If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.

    Note:  As long as a taxpayer that has willfully committed tax crimes (potentially including non-a fraudulently filed ERC claim elf-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.

    It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process.  Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

    Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

    As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth.   See our Testimonials to see what our clients have to say about us!

    We Are Here for You

    Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.

    In addition to our fully staffed main office in downtown Irvine California,  the Tax Law Offices of David W. Klasing has unstaffed (conference room only) California based satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad, Sacramento. We also have unstaffed (conference room only) satellite offices in Las Vegas Nevada, Salt Lake City Utah, Phoenix Arizona & Albuquerque New Mexico, Austin Texas, Washington DC, Miami Florida and New York New York that solely handle Federal & California Tax issues.

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