IRS Opens Second Employee Retention Credit Voluntary Disclosure Program

The Employee Retention Credit was created to provide financial relief of up to $26,000 per employee to businesses that retained employees by subsidizing wages during the pandemic. However, many businesses, including dental practices, fell prey to aggressive marketing by deceitful companies that intentionally misled people into believing they were eligible for these credits when they were not. A promise of free money is hard to turn down, so many businesses decided to take the gamble that the IRS would not catch up to them while others unknowingly claimed the credit that did not qualify.

Once the IRS started looking into these claims, they found that up to 90% of them contain some type of fraud and sent more than 25,000 disallowance letters to claimants as of early August 2024. But also knowing that many businesses were duped into filing ERC claims, they launched a voluntary repayment program that ended in March 2024. Now, the IRS has launched a second ERC voluntary disclosure program with a deadline of November 22, 2024, so businesses can correct their mistakes and avoid potential audits, fines, and requirements to repay the credit. 

Common warning signs

Dental practices that claimed ERCs should carefully reassess their claims, especially if third-party firms assisted with the filing. Common red flags that could indicate a fraudulent ERC claim include:

  1. Practices that remained fully operational and did not experience a significant decline in gross receipts may not qualify for the ERC. 
  2. Some businesses misunderstood what constitutes a full or partial suspension under a government order, and many of the ERC mills relied on this confusion. Simply facing challenges during the pandemic doesn’t qualify as a suspension. Dental practices were considered “essential businesses” in almost every location and were not subject to many of the closure mandates.  Therefore, this aspect applied for a very limited period and a few limited geographical locations during 2020 only. If your claim was based solely on a full or partial suspension, your ERC may be considered erroneous.  
  3. Claiming wages paid to family members can lead to problems, as these claims are often ineligible or calculated incorrectly.
  4. Wages that were counted towards PPP loan forgiveness cannot also be claimed for ERC. Double-dipping in this manner is a common error.

What to do now

If you are concerned that some or all of your claim may not be accurate, we encourage you to do the following:

  1. Review your claims: It’s essential to thoroughly review all ERC claims to ensure compliance with IRS rules and all claimed quarters and wages meet eligibility requirements.
  2. Reach out to us: We understand the complexities of the ERC, can provide guidance on the voluntary disclosure program, and can help you correct any errors in past claims.
  3. Participate in the disclosure program: If you suspect your practice may have claimed the ERC incorrectly, consider enrolling in the IRS’s voluntary disclosure program before the November 22, 2024, deadline. This proactive step can help you avoid future interest, penalties and even up to five years in jail.
  4. Stay updated: Tax regulations are constantly evolving. We will continue to provide you with the latest updates on ERC rules and other relevant tax credits, but if you have specific questions, don’t hesitate to call us.

Correcting ERC claims through the voluntary disclosure program can prevent more severe consequences down the line. Not only does this protect your practice’s finances, but it also maintains your credibility and trustworthiness as a business. Don’t wait until it’s too late – review your ERC claims and ensure your practice complies with IRS guidelines. If you need assistance, our team is ready to help.

IRS Extends ERC Claim Freeze Due to Rampant Fraud

The Employee Retention Credit (ERC), originally a part of 2020 pandemic relief, provided up to $26,000 per employee to help businesses manage financial hardships and retain employees. The plan was to distribute $55 billion over ten years, but the IRS has paid out an unexpected $230 billion due to widespread abuse of the program. This misuse has forced the IRS to freeze new claims and intensify audits, particularly targeting fraudulent claims encouraged by companies aggressively marketing to overly trusting business owners, many of whom are dental practice owners. 

Even with the freeze in place since October 2023, the IRS still receives more than 17,000 new applications weekly. IRS Commissioner Daniel Werfel has voiced concerns over the abuse and called for Congress to create legislation to potentially halt new claims permanently to prevent further misuse. An internal review by the IRS suggested that up to 90% of the evaluated claims could be fraudulent, with some filed by nonexistent businesses or those exaggerating their workforce size. This alarming level of fraud underscores the importance of compliance and the risks associated with opportunistic schemes during crises.

For dental practice owners and managers, the situation highlights the critical need for due diligence when seeking tax credits. Many businesses have been misled by promises of “free ERC money,” resulting in substantial financial and legal repercussions. In fact, many of these companies offering to assist with ERC applications are paid with on a commission structure, incentivizing them to encourage business owners to apply for more than they are due. Once paid, it is impossible to reach these companies, leaving the dental practice owner to repay all of the credit, including the commission, and also face fines as much as $500,000 and up to five years’ jail time.

For those who have filed recent legitimate ERC claims, the ongoing freeze means a delay in processing and uncertainty about when or if funds will be disbursed. If you have filed for the credit and now question its validity, it is possible to withdraw an ERC claim before it is paid. 

Business owners are advised to remain patient and vigilant, ensuring that any claims or financial incentives they pursue are thoroughly vetted and legally sound.

Dental practice owners and managers should thoroughly vet any claims or financial incentives to ensure they are legally sound and consult with knowledgeable professionals who can provide accurate guidance and support. If you have ERC or other tax-related questions, reaching out to one of our experienced advisors to get answers and ensure that your business remains compliant.