The IRS is taking steps to provide tax relief to businesses and individuals affected by the ongoing Covid-19 pandemic. This week, the agency announced two significant forms of relief, offering good news for those who mistakenly claimed the Employee Retention Credit (ERC) and for individuals, businesses, and other organizations who fell behind on their taxes during the pandemic years of 2020 and 2021.
Voluntary Disclosure Program for Erroneous ERC Claims
The ERC was initially designed as a Covid relief measure for businesses that kept their employees on the payroll during the pandemic. However, some unscrupulous tax professionals and others took advantage of the situation by promoting it to businesses that were not eligible. As a result, the IRS has been inundated with a high volume of incorrect claims. To address this issue, the agency has recently started sending out more than 20,000 letters notifying taxpayers of these disallowed claims.
To further encourage compliance and rectify erroneous claims, the IRS has introduced a voluntary disclosure program. This program allows businesses that received an ERC tax break but shouldn’t have to come forward and repay the money at a discounted rate of 20%.
IRS Commissioner Danny Werfel explains, “The disclosure program provides a much-needed option for employers who were misled into making these claims and now recognize their mistake. We have been in discussions with taxpayers and tax professionals across the country, and we understand that many employers are eager to correct their errors.”
Waiver of Penalties for Late Tax Payments
In addition to addressing ERC claims, the IRS is also providing relief for those who fell behind on their tax payments during 2020 and 2021. Due to the unprecedented effects of the Covid-19 pandemic, collection notices were temporarily suspended in February 2022. As a result, approximately 4.7 million individuals, businesses, and other organizations did not receive follow-up collection notices.
To alleviate the burden on these individuals and entities, the IRS is waiving some of the penalties that were incurred during this period when payments should have been made but were not accompanied by a mailed payment reminder.
These measures are part of the IRS’s ongoing efforts to support taxpayers and provide relief during these challenging times. If you believe you may be eligible for any of these relief programs, it is advisable to consult a qualified tax professional and take advantage of the opportunities provided by the voluntary disclosure program and penalty waivers.
IRS Announces Penalty Relief and ERC Benefits for Taxpayers
The IRS has recently announced two significant updates that will benefit taxpayers. The first is penalty relief for those who have not received any communication from the IRS in a while and suddenly face a larger tax bill. This relief is aimed at helping individuals in this situation by providing a common-sense approach to address their concerns.
The second update concerns the Employee Retention Credit (ERC) relief, which has been long-awaited. The IRS had been working on this initiative for some time, and it was essential to release the details before the end of the year, as initially promised. Fortunately, the agency managed to deliver on its commitment despite the tight deadline.
It is crucial to note that these updates are a result of coincidence rather than holiday cheer. Nonetheless, taxpayers will benefit significantly from these developments. The penalty relief will waive approximately $1 billion in penalties, primarily benefiting lower-income individuals. In fact, almost 70% of the recipients earning relief make less than $100,000 annually.
The ERC relief offers an appealing proposition to taxpayers. With a 20% reduction in the tax bill and the elimination of interest and penalties, it is no surprise that many are expected to take advantage of this opportunity.
An additional advantage for the IRS is the valuable information collected from businesses applying for relief. The agency will gather details about the tax advisors or service providers involved in preparing their initial ERC claim. This data has the potential to uncover unscrupulous firms that took advantage of Covid relief programs. Therefore, enforcement actions may follow as the IRS cracks down on such entities.
All in all, these updates from the IRS provide much-needed relief to taxpayers and pave the way for a fairer and more transparent system. The agency’s commitment to protecting and assisting taxpayers is commendable as it strives to address their concerns in a timely manner.