Finance
Businesses should know the IRS is doing this about the employee retention credit recapture letter
The IRS has announced plans to mail up to 30,000 letters to taxpayers to reverse or recapture improperly paid ERC claims.
In the midst of economic recovery from the covid-19 pandemic, many businesses that relied on the Employee Retention Credit (ERC) to stay afloat are now facing a new challenge: ERC recapture letters from the Internal Revenue Service (IRS). As the IRS intensifies its efforts to reclaim improperly paid ERC funds, receiving such a letter can be daunting.
Here’s what you need to know and the steps you should take if you find yourself in this situation.
What the Employee Retention Credit letters mean
ERC Recapture Letters are issued when the IRS determines that a taxpayer has received excessive or erroneous ERC funds. The IRS treats these erroneous refunds as underpayments of relevant employment taxes, which can be assessed and collected through normal tax assessment and collection procedures.
To qualify, a cliamant’s business had to have been fully or partially suspended by a governmental order due to covid-19. They also need to have experienced a significant decline in gross receipts (more than 50% in 2020 or any quarter in 2021 compared to the same quarter in 2019). Once gross receipts exceed 80% of the comparable quarter in 2019, eligibility ends.
Dealing with the letter
If you believe your ERC claim was wrongfully denied, you have the right to appeal the IRS’s decision. You can file a written protest to the office provided in the ERC disallowance letter, which must be submitted within the specified timeframe, typically 30 days. There are two types of protests: a small case request or a formal written request. Ensure you follow the instructions in the letter and include all applicable business information, relevant documents, and explanations to support your ERC claim.
Refer to IRS Publication 5 for detailed guidance on which type of protest to file.
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