“ This aggressive marketing of the Employee Retention Credit continues preying on innocent businesses and others . Aggressive promoters present wildly misleading claims about this credit . They can pocket handsome fees while leaving those claiming the credit at risk of having the claim denied or facing scenarios where they need to repay the credit .”
2023 Tax Season Toolkit while leaving those claiming the credit at risk of having the claim denied or facing scenarios where they need to repay the credit .”
The ERC is legitimate and many businesses can apply for this pandemic era credit . The IRS has added staff to handle ERC claims , which are time-consuming to process because they involve amended returns .
“ Advertisers ’ continual marketing barrages means many invalid claims are coming into the IRS , which also means it takes our hardworking employees longer to get to the legitimate Employee Retention Credits ,” Werfel said . “ The IRS understands the importance of these credits , and we appreciate the patience of businesses and tax professionals as we continue to work hard to get valid claims processed as quickly as possible while protecting against fraud .”
The IRS has been warning about aggressive ERC scams since 2022 , and it made its list of 2023 Dirty Dozen tax scams that people should watch out for .
This is an ongoing priority in many ways , and the IRS continues to increase ERC compliance . The IRS has trained auditors examining ERC claims posing the greatest risk and its Criminal Investigation Division is working to identify fraud and fraudulent claim promoters . a ploy to steal the taxpayer ’ s identity or take a cut of the taxpayer ’ s improperly claimed credit .
Properly Claiming the ERC There are very specific eligibility requirements for claiming the ERC . These are technical areas requiring review . The ERC can be claimed on an original or amended employment tax return for qualified wages paid between March 13 , 2020 , and December 31 , 2021 . However , to be eligible , employers must meet the criteria set forth in Sec . 3134 ( c ). For further details , see the Federal Tax Column on Page 24 in the June 2022 California CPA .
More Information IR-2023-105 also contains discussions on the following topics :
• How promoters lure victims ; and
• How businesses and others can protect themselves .
Updates IR -2023-169 , Sept . 14 , 2023 , announced that the IRS has suspended processing ERC claims through , at least , Dec . 31 , 2023 .
“ This aggressive marketing of the Employee Retention Credit continues preying on innocent businesses and others . Aggressive promoters present wildly misleading claims about this credit . They can pocket handsome fees while leaving those claiming the credit at risk of having the claim denied or facing scenarios where they need to repay the credit .”
The IRS reminds anyone improperly claiming the ERC that they must pay it back , possibly with penalties and interest . A claimant could find itself in a much worse cash position if the credit has to be repaid than if it was never initially claimed . So , it is important to avoid getting scammed .
When properly claimed , the ERC is refundable — designed for businesses that continued paying employees while shut down due to the COVID-19 pandemic or that had a significant gross receipts decline during the eligibility periods . This credit is unavailable for individuals .
Warning Signs of Aggressive ERC Marketing
• Unsolicited calls or advertising an “ easy application process .”
• Statements that the promoter or company can determine ERC eligibility within minutes .
• Large upfront fees to claim the credit .
• Fees based on a percentage of the refund of ERC claimed . This is a similar warning for average taxpayers , who should always avoid tax preparers basing their fees on the refund ’ s size .
• Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of its tax situation . In reality , the ERC is complex and requires careful review before applying .
• The IRS also sees wildly aggressive suggestions from marketers urging businesses to submit the claim because there is nothing to lose . In reality , those improperly receiving the credit could have to repay it — along with substantial interest and penalties . These promoters may lie about eligibility requirements . Also , those using these companies could be at risk of someone using this credit as
In addition , IR-2023-193 , Oct . 19 , 2023 , also announced a withdrawal process for helping businesses concerned about ineligible ERC claims amid aggressive marketing scams .
New R & E Rules : 2017 Tax Law Eliminates Immediate Deduction of R & E Expenditures Paid or Incurred in Tax Years Beginning After 2021
Section 13206 of the 2017 Tax Cuts and Jobs Act ( the “ Act ”) amended Sec . 174 , for research and experimental ( R & E ) expenditures paid or incurred in tax years beginning after 2021 .
Old Law Under the old law , a taxpayer could treat R & E expenditures paid or incurred during a tax year in connection with the taxpayer ’ s trade or business as expenses — which were allowed as a current deduction .
New Law Sec . 174 ( a )( 1 ) no longer allows current deductions for specified R & E expenditures for any tax year except for the amortization deduction allowed under Sec . 174 ( a )( 2 )— which provides that these expenditures be :
• Charged to a “ capital account ”; and
• Amortized ratably over five years , or fifteen years if attributable to research conducted outside the U . S ., Puerto Rico or any U . S . possession [ Sec . 41 ( d )( 4 )( F )], beginning with the midpoint of the tax year in which the expenditures are paid or incurred . This capital account must be a separate account for these expenditures
[ Rev . Proc . 2023-11 ( IRB 2023-3 , Jan . 17 , 2923 ), Footnote 2 ]. www . calcpa . org DECEMBER 2023 CALIFORNIA CPA 17