ERC Payroll Tax Refund Eligible Filings Plummet Due to IRS Moratorium and Audit Threats

Finance and Tax Professionals  Implement IRS Audit Ready Process to Protect Eligible ERC Clients

The recent IRS moratorium on processing new ERC Payroll tax refunds due to excessive signs of application fraud has created a great deal of “audit fear” among employers. The IRS announcement has resulted in a major drop in new ERC payroll tax filings filings based on the fear of aggressive audits attacking otherwise eligible employers who are legitimately entitled to the ERC payroll tax refunds needed to recover from the COVID pandemic.

These nervous employers include those who have already applied for and received tax refunds, as well as other employers still waiting for their ERC payroll tax refunds to arrive.

Last, but certainly not least,  employers who may qualify for the ERC tax refunds but are now so thoroughly terrified of an IRS audit  are not even applying, even when they are eligible and clearly qualified to receive tax refunds.

HAS THE ERC PAYROLL TAX REFUND PROGRAM SHUT DOWN?

It is critical that employers know the ERC payroll tax refund program is still available but  must be applied for carefully and accurately. We are interviewing Corporate Strategies Merchant Bankers CEO Tim Connolly concerning the nationwide effect of the recent IRS warning to all employers who have filed or plan to file for the ERC.

Interviewer–first, tell us how Corporate Strategies Merchant Bankers became involved in the ERC payroll tax refund program, given the company’s 39 years as a private lender to small to medium size businesses?

“The emergence of the COVID pandemic and the CARES Act passage in 2020 changed all business operations, large or small. Prior to the passage of the CARES Act, Corporate Strategies devoted over 1500 hours in professional time daily researching the 1100-page CARES Act during its negotiation and final passage. In particular, we researched its complex funding requirements to employers of all kinds. We naturally focused on those areas designed to assist our core client base of small businesses, churches, schools and non-profits.

While most of our work in this initial COVID phase was done without compensation, we did enjoy getting calls from traditional bankers asking how the SBA PPP applications were to be completed. Most banks were unprepared for the level of complexity, staffing workload or even the PPP applications themselves. The applications were revised several times by the SBA in the first few weeks of applications from employers who could not make payrolls. Employers of all kinds were truly desperate for any funding, and it was necessary to work seven days a week with PPP borrowers.

That said, our early work developing a CARES Act knowledge base allowed us to create processes and move forward confidently. As private bankers, we were comfortable in proceeding to do this important work. Corporate Strategies provided the critically needed experience and staff to facilitate the bank funding millions of dollars in SBA guaranteed EIDL, PPP and PPP2 loans to small business, church and school clients.

This critical time and early experience gave us a clearer vision of how we wanted to devote our time and resources to employers in need due to COVID and, remaining focused on faith-based institutions, small businesses and nonprofit client base.

In 2021, when the Employee Retention Credit (ERC) payroll tax refund program became available as a cash refund and expanded eligibility, we knew providing trustworthy qualification and eligibility services to our clients of churches, schools and small businesses was a natural extension of our business and remains so today. “

WHAT CAUSED THE IRS FRAUD WARNING AND MORATORIUM?

Interviewer-The IRS has basically declared an emergency due to evidence of massive fraud and huge numbers of applications from heavily advertised ERC mills, as they are called. How did this ERC fraud emergency situation happen? What can be done to correct or at least minimize this situation from continuing so employers who are legally eligible can get their ERC payroll tax refunds without fear of undeserved audits?

“We agree with many steps the IRS has taken to prevent abuse of the ERC program, and we have been warning potential clients about ERC payroll tax refund mass marketing scams for some time.   We are seeing abusive practices so frequently that we feel compelled to warn businesses, churches, schools and nonprofits we serve by publishing the IRS Eligibility standards and warnings on our website www.CSBankers.com. That said, more needs to be done to protect unknowing employers from incurring liabilities due to faulty filings or deliberately erroneous claims for ERC payroll tax refunds.”

WHAT CAN EMPLOYERS DO TO AVOID POSSIBLE FRAUDULENT ERC SCAMMERS?

Newly formed companies have armies of cold callers, texts, spam emails, multimillion dollar TV budgets and uninformed staff selling companies on the ERC. The clients   simply do not understand the jeopardy they are putting themselves in by using unscrupulous and uninformed resources to apply for ERC tax refunds.  Just this week we, received a solicitation letter from one of the mass mailing companies claiming a company with a $41,000 PPP loan could receive an ERC payroll tax refund of $858,000! It is totally misleading and absurd that this type of misrepresentation is in the market.

Employers who wish to avoid troublesome, costly  audits must carefully ferret out incompetent or downright shady ERC tax refund providers that are flooding media, mailboxes, inboxes and voice mail. This scrutiny is essential because improperly filed ERC payroll tax refunds can lead to hefty penalties and interest that may destroy a business.

Ask questions that experienced, knowledgeable tax professionals can readily answer:

1. How do you estimate my payroll tax refund with just my PPP loan amount? 
2. What is aggregation? How does it affect our company’s eligibility for the ERC? 
3. We are a church and we also operate a school under a different EIN from the church. Do we file under the same number? Do we include all employees of the church and school under aggregation rules?
4. How do the PPP requirements for FTEs differ from the ERC calculation?  
5. I am the majority owner of a family-owned business. Do my family members qualify for the ERC? 
6. We are a faith-based community, and some employees are clergy who do not pay into Social Security or Medicare—do they qualify for the ERC? 
7. We have a PPP loan outstanding that has not been forgiven—how does this affect our eligibility? 
8. Can our ERC tax refund be determined by comparing our quarterly 941 filings from 2019 with 2020 and 2021? 
9. We are a school that closed from March 2020 until January 2021—are we eligible for ERC the entire time we were closed? 
10. How do we determine our eligibility and refund amount if our operations were only partially suspended from March 2020 until year end 2020? 

If the prospective ERC services provider cannot readily answer these questions in detail, including providing published IRS guidance supporting their answer, hang up.

HOW CAN FRAUDULENT FILINGS BE IDENTIFIED EARLIER THAN IS POSSIBLE TODAY

The IRS does not currently accept electronic filings of ERC payroll tax refund filings along with backup information proving eligibility. The IRS needs more detailed information of eligibility by employers than simply mailing in amended 941X tax returns. At a minimum, every 941X amended payroll tax filing should be electronically submitted to the IRS and have attached detailed spreadsheets of ERC eligibility by individual employee payroll payments and wage offsets of forgiven PPP loans. This would provide an initial warning system based on previously reported 941 filings of salaries and ERC eligibility calculations, not just a paper summary sheet claiming the ERC tax refund. A “first round” examination of this type could readily identify questionable applications and  identify fraud sooner without the necessity of the IRS shutting down the entire system of 941X payroll amendment filings by lawfully entitled employers.

While we support the overall IRS actions, we do not agree with their characterization of contingency fee payments to qualified providers as being evidence of a scam. We are trustworthy finance, legal and tax accounting experts and with many years of experience in funding our clients. In virtually every case, our compensation is largely based on when our clients actually receive fundings, including receiving the ERC payroll tax refunds they are eligible for.

Mr. Connolly continued “We believe that churches, schools, non-profits and small businesses are the most deserving of these funds. They do not have the excess cash to pay accounting and finance professionals in advance, especially when our experience since 2021 is the IRS takes from 4 months to over a year to pay ERC payroll tax refunds.   We choose to invest in clients by supporting the upfront cost of our legal and accounting professionals and staff. Therefore, majority of our compensation comes when they receive their refunds.”

As the IRS warnings clearly illustrate, this important one‐of‐a‐kind payroll tax refund program is now a prime target for future audits. Congress recently appropriated $80 billion in expanded budget and the IRS has hired more than 400 examiners to increase auditing of ERC fraudulent or incorrect filings.

How can you prepare non-Corporate Strategies clients and other companies for the threatened IRS audits to come? 

We are a team of deeply experienced finance experts, tax attorneys, and ERC tax refund professionals led by a former Arthur Anderson tax auditor and well advised by  Attorney/CPAs and a former IRS Agent. We have previously qualified and fully documented churches, schools and small businesses for PPP,PPP2 and ERC payroll tax refunds totaling millions of dollars, whose ERC substantiation documentation records fully comply with IRS requirements. When we complete a qualification report for our clients to review, sign off and send the amended 941X to the IRS, twe like to describe our clients as   Audit Ready and Audit Fearless.

After previously dealing with IRS client reviews of payroll tax refund requests and full-scale client audit of various quarters of completed 941Xs, at point in time, none of our church, school or small business clients have been denied their ERC refund or assessed any interest or penalties. Most importantly, we firmly believe and have proven in practice, that if you meticulously follow the IRS ERC guidance, prepare properly and have the ERC substantiation documents the IRS requires, no eligible employer need  fear an audit of their ERC payroll tax refund.

Employers do not have to become victims of audit fear; however, each must be confident their own ERC tax refund is properly backed up in accordance with the IRS mandated ERC substantiation documents to become truly audit ready. Furthermore, those documents must be preserved for five years from the date your payroll tax refund request is filed.

In a friendly gesture to tax payers, the IRS has already announced a program where fearful prior ERC payroll tax refund recipients can voluntarily repay their payroll tax refunds. We believe the fear factor alone of the IRS proposing this program could unreasonably cause legitimate employers to give up their lawful refunds. It brings to mind paraphrasing the quote from former President Ronald Reagan “I’m from the IRS and I’m here to help you.”

Because of this, Corporate Strategies is currently researching an Audit Ready review program for non client  employers who have collected ERC refunds but want third party verification of their ERC payroll tax refund applications prepared by other firms. We are evaluating the requirements to do this review at a reasonable price, while keeping in mind the staff and professional requirements to do so. Our team believes there is a genuine need for honest employers to verify that their payroll tax refunds have been properly prepared and documented. We believe a substantiation document review would give employers the opportunity to amend 941X payroll tax amendments properly before an IRS auditor requests information for auditing their return and avoid penalty and interest assessments.

We will announce details on our decision to provide this service soon. We are seeking feedback on this possibility and would appreciate hearing opinions from others by email Ac****@CS*******.com . Our goal in assisting employers in ERC eligibility is to guide our clients from Audit Fear to Audit Fearless, knowing that the IRS required documentation to substantiate their ERC payroll tax refund is in hand. At this point, each client is IRS audit ready and will emerge from any  audit unscathed and without refund liability.

In addition to Corporate Strategies, there are many reputable, well-regarded firms with experienced tax professionals and legal counsel available to assess employer  eligibility and properly prepare or review your ERC payroll tax refund claim.  With a well-documented claim of any size or complexity, there is no reason not to apply for the ERC tax refund you are entitled to—but you must satisfy yourself that whoever you choose for ERC tax refund qualification work is trustworthy and fully understands:

1. The CARES Act and follow-on legislation
2. The extensive IRS and Treasury guidance and complex rules
3. If you have already filed your payroll tax refund and are concerned about IRS audit risk, get a professional document substantiation assessment of your previously filed ERC payroll tax refund audit risk and prepare to be IRS “Audit Ready.”

About Corporate Strategies Merchant Bankers

Founded by CEO Tim Connolly in 1984, Corporate Strategies team www.CSBankers.com  is comprised of business experts, tax accountants, tax lawyers, CPAs and former IRS agents with a combined 125+ years of tax, finance and government program funding experience. We are trusted ERC payroll tax refund professionals, IRS audit proven and ready to address  each client’s ERC payroll tax eligibility with the utmost confidentiality and skill. Contact us now on how to protect yourself from audit risk on a previously filed ERC tax refund as well.  Our meticulous approach to IRS ERC document substantiation and proven years of success will ensure you are audit ready and Audit Fearless.

Contact: Email  Ac****@CS*******.com  or 713-621-2737 (24/7).