The Internal Revenue Service continues to warn businesses to watch out for aggressive marketing by nefarious actors involving the Employee Retention Credit (ERC) and urged people to watch out for red flags that can signal trouble.

The credit, also called the Employee Retention Tax Credit or ERTC, is a legitimate pandemic-era tax credit but as time passes the credit has been increasingly the target of aggressive marketing to businesses that may not qualify for the credit.

Although promoters advertise that ERC submissions are “risk free,” there are actually huge risks facing businesses as the IRS increases its audit and criminal investigation work. Hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.

The IRS reminds anyone who improperly claims the ERC that they must pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse cash position if it has to pay back the credit than if the credit was never claimed in the first place. This underscores the importance of taxpayers taking precautionary steps and avoiding being pushed by a promoter, including instances where a promoter can collect contingency fees as much as 25%.

Properly claiming the ERC

There are very specific eligibility requirements for claiming the ERC. Employers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have:

• Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings because of COVID-19 during 2020 or the first three quarters of 2021,
• Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
• Qualified as a recovery startup business for the third or fourth quarters of 2021.

Warning signs of aggressive ERC marketing

The IRS 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 the credit – along with substantial interest and penalties.

Warning signs to avoid include:

• Unsolicited calls or advertisements mentioning 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 amount of Employee Retention Credit claimed. This is a similar warning sign for average taxpayers, who should always avoid a tax preparer basing their fee on the size of the refund.
• Preparers seeking anonymity by refusing to sign the ERC return being filed by the business as well as supplying their identifying information and a tax identification number. Similar to “ghost preparers,” this limits the risk to just the taxpayer claiming the credit.
• Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group’s tax situation. In reality, the Employee Retention Credit is a complex credit that requires careful review before applying.

Unscrupulous promoters may lie about eligibility requirements, including refusing to provide detailed documents supporting their computations of the ERC. In addition, those using these companies could be at risk of someone using the credit as a ploy to steal the taxpayer’s identity or take a cut of the taxpayer’s improperly claimed credit.

How the promoters lure victims

The IRS continues to see a variety of ways that promoters can lure businesses, tax-exempt groups and others into applying for the credit.

• Aggressive marketing. This can be seen in countless places, including radio, television, social media, online as well as phone calls and text messages.
• Direct mailing. Some ERC mills are sending out fake letters to taxpayers from the non-existent groups like the “Department of Employee Retention Credit.” These letters can be made to look like official IRS correspondence or an official government mailing with language urging immediate action. Some solicitations even make it look like it’s coming from the bank the business uses.
• Leaving out key details. Third-party promoters of the ERC often don’t accurately explain eligibility requirements or how the credit is computed, and they do not share their workpapers with the businesses claiming the credit. They may make broad arguments suggesting that all employers are eligible without evaluating an employer’s individual circumstances.
  • For example, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021, but promoters fail to explain this limit.
  • Also, the promoters may not inform taxpayers that they need to reduce wage deductions claimed on their business’ federal income tax return by the amount of the Employee Retention Credit. This causes a domino effect of tax problems for the business.
• Paycheck Protection Program participation. In addition, many of these promoters don’t tell employers that they can’t claim the ERC on wages that were reported as payroll costs to obtain Paycheck Protection Program loan forgiveness.
• Mistaken supply chain arguments. Contrary to advice given by unscrupulous preparers, IRS legal guidance in July makes clear that supply chain disruptions do not qualify an employer for the credit unless they are due to a government order. Employers that experienced supply chain disruptions qualify for ERC only if they had to suspend their business operations because their suppliers were unable to provide critical goods or materials due to a government order that caused the supplier to suspend its operations.

How businesses and others can protect themselves

The IRS reminds businesses, tax-exempt groups and others being approached by these promoters that there are simple steps that can be taken to protect themselves from making an improper Employee Retention Credit.

• Work with a trusted tax professional. Eligible employers who need help claiming the credit should work with a trusted tax professional; the IRS urges people not to rely on the advice of those soliciting these credits. Promoters who are marketing this ultimately have a vested interest in making money; in many cases they are not looking out for the best interests of those applying.

• Request a detailed worksheet explaining ERC eligibility and the computations used to determine the ERC amount.

• Don’t apply unless you believe you are legitimately qualified for this credit. Details about the credit are available on IRS.gov, and again a trusted tax professional – not someone promoting the credit – can provide critical professional advice on the ERC.

Source: IRS-2023-170, Sept. 14, 2023

The Internal Revenue Service is reminding taxpayers who pay estimated taxes that the deadline to submit their third quarter payment is Sept. 15, 2023.

Taxpayers not subject to withholding may need to make quarterly estimated tax payments. Taxpayers such as gig workers, sole proprietors, retirees, partners and S corporation shareholders generally must make estimated tax payments if they expect to have a tax liability of $1,000 or more when they file their return.

A general rule of thumb is that taxpayers should make estimated tax payments if they expect:

• To owe at least $1,000 in taxes for 2023 after subtracting their withholding and tax credits.
• Their withholding and tax credits to be less than the smaller of:
  • 90% of the tax to be shown on their 2023 tax return or
  • 100% of the tax shown on their complete 12-month 2022 tax return.

More taxpayers will receive 1099-Ks for 2023

Taxpayers who were paid over $600 by payment apps and online marketplaces or received any amount by payment cards could receive a Form 1099-K, Payment Card and Third Party Network Transactions, starting January 2024, for payments received in 2023. This includes anyone with a side hustle, sole proprietors, and anyone selling goods and services online. It’s important to remember that taxpayers should report their income, unless it’s excluded by law, regardless of whether they receive a Form 1099-K or any other third-party reporting document. The 1099-K reporting threshold for third party reporting doesn’t change what counts as income or how tax is calculated. Find more information at Understanding Your Form 1099-K.

Figuring estimated tax

To figure estimated tax, taxpayers must calculate their expected Adjusted Gross Income (AGI), taxable income, taxes, deductions and credits for the year. To figure 2023’s estimated tax, it may be helpful to use income, deductions and credits from 2022 as a starting point.

Taxpayers can use the tools on IRS.gov to check if they are required to pay estimated taxes. The Tax Withholding Estimator, the IRS Interactive Tax Assistant and the worksheet in Form 1040-ES, Estimated Tax for Individuals all offer clear step-by-step instructions.

Avoid a penalty for underpayment

Taxpayers who underpay their taxes may have to pay a penalty regardless of whether they paid through withholding or through estimated tax payments. Late and skipped estimated tax payments can incur penalties even if a refund is due when a tax return is filed.

Taxpayers should use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to see if they owe a penalty. Taxpayers can also request a waiver of the penalty if they underpaid because of unusual circumstances and not willful neglect.

Special rules apply to some groups of taxpayers such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees and those who receive income unevenly during the year.

Paying the easy way

An electronic payment is the easiest, fastest and most secure way to make an estimated tax payment. The Payments page on IRS.gov provides complete tax payment information, how and when to pay, payment options and more.

Taxpayers can securely log into their IRS Online Account or use IRS Direct Pay to submit a payment from their checking or savings account.

Taxpayers can also pay using a debit card, credit card or digital wallet. Taxpayers should note that the payment processor, not the IRS, charges a fee for debit and credit card payments. Both Direct Pay and the pay by debit card, credit card or digital wallet options are available online at IRS.gov/payments and through the IRS2Go app.

Taxpayers can also use the Electronic Federal Tax Payment System (EFTPS) to make an estimated tax payment. Payment by check or money order made payable to the “United States Treasury” is also an option.

The IRS encourages taxpayers earning income not normally subject to withholding to consider making estimated tax payments throughout the year to stay current and avoid a surprise at tax time.

The fourth and final estimated tax payment for tax year 2023 is due on Jan. 16, 2024.

Source: IRS-2023-165, Sept. 6, 2023

As part of an expanding effort to improve service, the Internal Revenue Service continues expanding Taxpayer Assistance Centers across the country while also starting a special series of events to help taxpayers located in areas not close to the agency’s in-person offices.

In these new Community Assistance Visits, the IRS will set up a temporary Taxpayer Assistance Center to give taxpayers from underserved areas an opportunity to meet face-to-face with IRS assistors. This is part of a larger effort underway to transform the IRS and improve service to taxpayers as part of the new Strategic Operating Plan with funding made available through the Inflation Reduction Act.

Agency continues reopening walk-in offices; 35 TACs reopened or added following Inflation Reduction Act funding

The IRS conducted the first event last month in Paris, Texas, and has plans to hold similar events in more states. Currently, seven additional locations have been determined in Michigan, Nebraska, Idaho, Alaska, Hawaii, Oregon and New Mexico.

“A key part of the IRS transformation effort will be getting taxpayers the help they need,” said IRS Commissioner Danny Werfel. “While an important part of this involves providing improved online tools and services, in-person assistance is a vital piece that the IRS cannot overlook. We continue to add staff and reopen previously closed offices. But to help people farther away, these special community visits are designed to get into places where IRS offices are a long distance away or are not convenient for some taxpayers. We want to do more to help taxpayers, and the IRS is putting our additional funding to work through important projects like this.”

The Inflation Reduction Act, approved in August, provided the IRS long-term funding for the agency to transform its operations and improve taxpayer service, enforcement and technology. Projects like the Community Assistance Visits represent part of the IRS Strategic Operating Plan, the blueprint for the agency’s transformation work.

For years, observers have noted that IRS Taxpayer Assistance Centers were too limited in number or are too far to help many people who need in-person assistance or who don’t have access to online tools.

To address this, the IRS has opened or reopened 35 Taxpayer Assistance Centers since the Inflation Reduction Act funding was approved at locations across the country; a full list is below. In addition, the IRS has hired more than 600 personnel in TACs to provide in-person assistance.

The IRS believes Community Assistance Visits will help address the needs of taxpayers who aren’t able to visit an in-person office. Paris, Texas was selected, in part, based on its distance to the closest permanent IRS Taxpayer Assistance Center. The nearest center is about 90 miles away.

Currently, the IRS plans to hold additional Community Assistance Visits in at least seven locations through October. The initial list includes Alpena, Michigan; Hastings, Nebraska; Twin Falls, Idaho; Juneau, Alaska; Lihue, Hawaii; Baker City, Oregon; and Gallup, New Mexico.

For the Paris visit, the IRS partnered with the local United Way organization. The IRS will be working with other community groups for future visits to obtain secure space to help taxpayers. To get help, taxpayers must bring current state or government issued photo identification and any relevant letters or notices they received from the IRS, plus any requested documents.

During the event, the IRS also welcomes tax professionals, lawyers and preparers and their clients to work account-related issues.

During the Community Assistance Visit, taxpayers can meet one-on-one with IRS assistors to receive these services:

• Account inquiries (help with letters, notices and levies on wages or bank account).
• Adjustments (changes to tax account information or payments).
• Basic tax law assistance (answers related to individual federal tax returns).
• Payment arrangements. Because this is a temporary location, IRS assistors cannot accept payments of any kind. Taxpayers are encouraged to make payments online.
• Authentication of taxpayer identities as part of the Taxpayer Protection Program (TPP).
• Transcripts and tax forms (order only).
• Information on IRS.gov resources and tools.

Professional foreign language interpretation will be available in many languages through an over-the-phone translation service. For deaf or hard of hearing individuals who need sign language interpreter services, IRS staff will schedule appointments for a later date. Alternatively, these individuals can call TTY/TDD 800-829-4059 to make an appointment.

Taxpayers who would like to get help can call 844-545-5640 from 7 a.m. to 7 p.m., to make an appointment to visit an existing IRS Taxpayer Assistance Center. Contact Your Local Office has information for IRS Taxpayer Assistance Centers.

List of reopened Taxpayer Assistance Centers since August 2022 following Inflation Reduction Act funding

 *TACs that have been added. The others were reopened.

Source: IRS-2023-127, July 14, 2023