Since the pandemic, the Internal Revenue Service (IRS) has pursued taxpayers who mistakenly or intentionally profited from the Employee Retention Credit (ERC) program.
The ERC program also benefited scammers and bad actors who took serious advantage of the program. By 2023, the IRS had 323 ongoing investigations that involved more than $2.8 billion in potentially fraudulent ERC claims. In the ensuing years, the IRS has continued to highlight the tax fraud associated with the program by pursuing those who unlawfully took advantage of it, as well as business owners who received funds but did not realize they were ineligible.
Over the years, the IRS has continued to open criminal tax investigations on its backlog of claims and offered opportunities for claimants to withdraw their claims and return funds they received. Repayment often includes penalties and added interest, which means the longer you wait, the more you pay.
The IRS continues to review ERC claims. When a claim is disallowed, the agency sends a letter to the claimant giving them two years from the date of the letter to respond and resolve their claim or file a refund suit in federal court. When the two-year period has lapsed, the IRS cannot issue a refund even if the disallowance turns out in the taxpayer’s favor.
Recognizing the clock is ticking down for taxpayers who have responded to the IRS letter and are awaiting word from the IRS, the agency began offering a process in April to extend the two-year period. To extend the clock, taxpayers can fill out Form 907, Agreement to Extend the Time to Bring Suit, and submit it through the IRS Document Upload Tool. The IRS will then review the agreement and sign the document if approved. The extension is only valid after the IRS signs on the bottom line.
If you are working to validate an ERC credit and the time on your claim is short, consider using the extension to keep your claim in play. If you are battling the IRS over an ERC credit, consulting an experienced IRS tax attorney can provide clarity. Be aware that filing for an ERC can also trigger an IRS audit or result in a criminal tax investigation if the application is determined to be fraudulent. For additional context, see our Tutorial on IRS Audits.
Robert J. Fedor, LLC is an established and trusted criminal tax defense law firm serving clients across the U.S. and internationally from offices in Cleveland and Chicago. Our tax attorneys aggressively represent clients in matters involving tax fraud, audits, and related disputes. Contact the firm for assistance.