What's Happening?
The Internal Revenue Service (IRS) has released a fact sheet detailing the impact of the One Big Beautiful Bill Act (OBBBA) on the Employee Retention Credit (ERC). Originally part of the CARES Act of 2020,
the ERC was designed to incentivize employers to retain employees during the COVID-19 pandemic by offering tax credits. Although the ERC was intended for use through 2021, businesses were given until April 15, 2024, to claim credits for 2020 and until April 15, 2025, for 2021. The OBBBA introduces penalties for promoters of fraudulent ERC claims and limits the availability of new credits or refunds after July 4, 2025. The IRS fact sheet specifies that no new ERC claims for the third and fourth quarters of 2021 will be allowed or refunded if filed after January 31, 2024, even if eligibility requirements are met.
Why It's Important?
The guidance from the IRS is crucial for businesses and tax professionals navigating the complexities of the ERC amid increased scrutiny and potential penalties. The OBBBA's provisions aim to curb fraudulent claims, which have become a significant issue, leading to billions in fraudulent payouts. By imposing stricter compliance measures and penalties, the IRS seeks to protect the integrity of the tax credit system. This development affects businesses that may have relied on the ERC for financial relief during the pandemic, as they must now ensure compliance with the new deadlines and regulations to avoid penalties.
What's Next?
Businesses and tax professionals will need to review their ERC claims to ensure compliance with the new guidelines. The IRS is likely to continue its enforcement efforts against fraudulent claims, and businesses should prepare for potential audits or reviews. Tax advisors may need to update their practices to align with the new regulations and assist clients in navigating these changes effectively.
