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IRS Issues a Hard Stop to ERC Payouts

Published: Oct 13, 2023

Employee Retention Credit (ERC): Emerging Risks and Protective Measures

As you may know, the Employee Retention Credit (ERC) has been under intense scrutiny, a topic highlighted both in mainstream media and business channels alike. The program, initiated as part of the Cares Act, offered businesses an alternative to the paycheck protection program (PPP). As highlighted in a recent article by The Washington Post, the provisions were revised in 2022 allowing businesses that availed the PPP to also benefit from the ERC.

However, the rapid implementation of the ERC has led to unintentional consequences and diverse interpretations. As discussed in the video, this hastiness has given rise to concerns around its promotion. A recurring theme is the potential for businesses to inadvertently misinterpret the guidelines, resulting in them securing funds they weren't eligible for. This poses a significant challenge, as the IRS has already indicated its intention to audit these claims.

With the IRS pausing their ERC rollout, it becomes increasingly apparent that businesses who participated could face heightened audit risks. This isn't just a potential issue for business owners but also for ERC promoters and CPAs who might have processed and signed off on these amended returns. The potential repercussions could be immense.

For businesses looking to safeguard themselves against such uncertainties, an 831(b) plan emerges as a viable solution. This plan offers a mechanism to defer funds for uninsured risks, which is particularly pertinent given that ERC refunds are taxable in the year they're received. In addition to audit risk, an 831(b) plan offers protection against political risks, brand damage and many more. In the event of an audit exposing discrepancies in ERC claims, having a mechanism that manages risk becomes invaluable.

The Audit Assurance policy through an 831(b) Plan is increasingly becoming a protective measure most business owners are adopting. This policy covers costs associated with an audit, including hiring CPAs or attorneys, and any penalties and interest incurred. It’s a proactive measure in a climate of uncertainty, ensuring that businesses aren't caught off-guard.

CPAs and ERC promoters too can mitigate risks. The Tax Audit Assurance serves as a form of warranty they can offer their clients. By leveraging the 831(b) Plan, they can create a safety net, ensuring that they're prepared for potential audits and can provide services from a tax audit insurance fund.

While the ERC was created to offer relief, it's clear that with evolving guidelines and potential for misinterpretation, businesses and ERC promoters must take proactive steps to protect themselves. At times like these, an 831(b) Plan can offer an invaluable shield against the looming risks in this complex landscape.

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