Home care employers taking (or considering taking) Employee Retention Credits (ERCs) should be aware of a recent IRS news release. In it, the IRS warns about third-party firms that work on a contingent basis and promote overly aggressive or unsupportable ERC claims.
For example, an employer should be careful if the promoter recommends taking a blanket credit for all available quarters without an applicable government order fully or partially suspending business operations or a significant drop in gross receipts. The IRS is concerned that promoters are maximizing their contingent fee at the ultimate risk of the employer.
The IRS specifically advises employers “to be cautious of advertised schemes and direct solicitations, ”especially those that “are too good to be true.” And the IRS reminds employers they “are always responsible for the information reported on their tax returns” and that “[i]mproperly claiming the [ERC] could result in taxpayers being required to repay the credit along with penalties and interest.” In other words, it is no defense that the promoter recommended an employer improperly claim the credits.
If an employer taking an ERC is determined not eligible for the credits, it could owe back the underpayment of taxes, interest and penalties. The American Rescue Plan Act of 2021 extended the statute of limitations for ERCs from the normal three years to five years. As we have previously stated, we believe this is an indication that the IRS is expecting to aggressively enforce the ERTC program. We also expect that the IRS will use some of its newly appropriated funds through the Inflation Reduction Act to step up ERC audits.
There is hope for employers, though. The CARES Act provides that the secretary of the treasury shall waive any such penalty if the secretary determines that such failure was due to the “reasonable anticipation” of the credit.
Attorneys Angelo Spinola, D. Scott Lindstrom and Will Vail are attorneys at Polsinelli, a law firm with 900 attorneys in 21 offices nationwide representing thousands of home-based care providers. Learn more about the firm’s home health, home care and hospice division and online solutions for home care.