IRS woes

No Harm, No Foul: New ERC Voluntary Disclosure Program for Impacted Businesses

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Did you file an Employee Retention Credit (ERC) claim in error? Mistakes happen. That’s why the IRS recently introduced a new Voluntary Disclosure Program aimed at helping businesses rectify erroneous claims and repay the funds.

The program is open through March 22, 2024, allowing employers to reimburse the IRS for 80% of the claim they received. Why 80%? Many ERC promoters responsible for leading small businesses astray charged a percentage fee at the time of payment, resulting in recipients never receiving the full ERC amount.

To apply for the Voluntary Disclosure Program:

You’ll need to file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, using the IRS Document Upload Tool. Additionally, if the ERC was claimed for any tax period ending in 2020, Form SS-10, Consent to Extend the Time to Assess Employment Taxes, must be submitted along with Form 15434.

Like most employers, you probably use a payroll company that reports, collects and pays employment taxes on your behalf. In such cases, the company — not you — must file Form 15434.

If a third party filed for the ERC on your behalf, they must complete Form 2848, Power of Attorney and Declaration of Representative.

Next steps:

If the IRS approves your application, you’ll be mailed a closing agreement. Repayment may be made online or by phone via the Electronic Federal Tax Payment System. If you’re unable to fulfill the required 80% repayment, the IRS may consider an installment agreement on a case-by-case basis, in which fees and penalties may apply.

Need an informed guide to navigate future situations like these — and protect your company’s interests? Reach out to the professionals at Magone & Company.

New Tax Scam Regarding Unclaimed Refunds

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The IRS is cautioning taxpayers of a new scam with the promise of unclaimed refunds.

This phishing scam requests sensitive information, including a photo of your driver’s license, your Social Security number and banking details, in order to steal your identity.

Here are the warning signs:

Suspicious mailer. The scam is sent via a delivery service in a cardboard envelope printed on IRS letterhead. It contains an “important notice” regarding an unclaimed refund. The letter prompts you to fill out personal details and submit it to a filing agent in order to obtain your refund.

Poor grammar, inconsistent capitalization, mixture of fonts. For example, the letter requests: “A Clear Phone of Your Driver’s License That Clearly Displays All Four (4) Angles, Taken in a Place With Good Lighting.”

Awkwardly worded phrases. Poorly written directions include: You’ll Need to Get This to Get Your Refunds After Filing. These Must Be Given to a Filing Agent Who Will Help You Submit Your Unclaimed Property Claim. Once You Send All The Information Please Try to Be Checking Your Email for Response From The Agents Thanks”

Stopping financial fraud in its tracks

If you receive a suspicious letter, do not contact the number on the letter. Instead, report the potential scam to phishing@irs.gov. You may also call the IRS’s main phone number at (800) 829-1040.

If you have questions about protecting your own or your business’ identity, reach out to the knowledgeable CPAs at Magone & Company. Our extensive fraud protection expertise can help keep your personal information under wraps. Give us a call today at (973) 301-2300.

Business Owners: Don’t Fall for the ERC Scam

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Your business has likely been the recipient of many robocalls telling you that you’re missing out on the Employee Retention Credit (ERC). Callers promise eligibility and a fast, easy application process. Don’t fall for it, says the IRS.

The ERC (also known as the ERTC) is a tax credit that was introduced during COVID to make it easier for struggling employers to keep employees on the payroll. It was available to eligible employers for qualified wages paid from March 12, 2020 – October 1, 2021 (recovery start-up businesses qualified through December 31, 2021).

Like many pieces of pandemic-era legislation, ERC parameters changed several times, which makes claiming the credit not as straightforward as these cold callers make it out to be.

Third parties typically charge significant upfront fees, without bothering to explain that your business may not be eligible after all. If that’s the case,  your business will not only need to return the refund. You’ll also incur costs to amend your employment tax returns, and may even be subject to penalties and interest.

Don’t fall victim to this or any other scam. If you need to confirm eligibility for this or any other possible tax credits, please get in touch.

Looking for legit tax-saving opportunities? Check out our Small Business Guide to Mid-year Tax Planning.

You vs. the IRS: 5 Common Reasons for Tax Litigation

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Most tax disputes with the IRS are settled during audits, collection proceedings and appeals — long before the need for litigation.

But sometimes, disagreements with the IRS land taxpayers in federal court. A tax litigation case can result from any form of taxation, from income to local property taxes. And these legal proceedings don’t just impact individual taxpayers, but businesses and estates, as well.

Litigation may result in penalties, fees, jail time or (best-case scenario) dismissal for the accused party. But what triggers litigation in the first place?

Here are 5 common reasons for tax litigation:

  1. Accuracy-related penalties. According to the IRS, this type of penalty applies when underpayment is shown on a return. For example, a deduction or credits may be claimed when the party doesn’t qualify, or total income is not reported. Challenging an accuracy penalty usually starts with an IRS auditor before seeking the last resort — heading to court.
  2. Summons enforcement. These disputes arise when a taxpayer doesn’t comply with an IRS request for information, usually stemming from an audit or investigation. A summons is issued, forcing the taxpayer to procure the necessary paperwork.
  3. Trade or business expense From home office costs to interest deductions, these cases are usually identified during an IRS audit. In most instances, the taxpayer doesn’t have documentation to substantiate an expense, but they can attempt to rectify the penalty by presenting their case to the IRS.
  4. Failure to file/pay penalties. These issues are typically the result of a taxpayer not submitting sufficient information or properly maintaining tax records, rather than willful neglect to file and pay. A taxpayer can wipe the slate clean by demonstrating that the error is due to reasonable cause.
  5. Frivolous issues. The IRS constitutes a frivolous argument as any in which a taxpayer makes a nonsensical dispute about the validity of the tax code. For example, they may challenge a collection issue by citing that the tax code is illegal. The best way for taxpayers to avoid these cases? Stick to the facts.

Evading the courthouse

If you’re involved in a tax dispute, we recommend speaking with a knowledgeable tax professional to guide you through IRS procedures and come to a resolution — outside of court. But sometimes, it’s necessary for the case to be further litigated.

If you have questions on any tax-related issues, don’t hesitate to contact the experts at Magone & Company

Why Your Business Should Prep for an Employment Tax Audit — Now

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In August 2022, the Inflation Reduction Act was signed into law with a provision earmarking nearly $80 billion in funding to support the IRS enforcement of federal tax laws, notably, employment tax.

The IRS typically performs employment tax audits to ensure that a business is compliant with tax filing requirements and to verify the reported amounts.  With more IRS “boots on the ground,” you may want to prepare for a potential employment tax audit sooner rather than later.

Zeroing in on employer liability

Employers are generally required to withhold federal income, Social Security and Medicare taxes (collectively known as employment taxes) from employees’ earnings and forward these funds to the U.S. Treasury on employees’ behalf.

You’re also liable for taxes imposed by the Federal Unemployment Tax Act (FUTA). The IRS examines some employment tax returns to determine if wages, tips, compensation, credits and taxes are reported accurately.

Companies are obligated to remit payroll taxes on a timely basis. These taxes are called trust fund taxes because employee money is held in a trust until the employer makes a federal tax deposit in that amount. Any unpaid trust fund taxes must be immediately available for collection from the business.

In addition, it’s critical to correctly determine whether workers are employees or independent contractors, as it impacts employment taxes. Employee misclassifications can be an expensive mistake. If an independent contractor is misclassified by a company and pays his/her own self-employment taxes, but offsets it with expenses, the government never receives the entire amount owed.

If you’re concerned you may be falling short on your obligations, now’s your chance to make sure you’re in good standing — and fix what’s broken before an employment tax audit is conducted.

Calling for audit improvements

On February 13, 2023, the Treasury Inspector General for Tax Administration (TIGTA) released a report on the need for improvements to the employment tax examination process to increase taxpayer compliance and collection potential.

Employment tax workstreams are set up to focus on probable areas of non-compliance to show cases with a high potential for audit adjustments. But with increased funding, the employment tax audit process is likely to fine-tune its processes and may involve using more technology in selecting who will be subject to an examination.

Here’s an unexpected way that artificial intelligence (AI) could impact your business. An AI algorithm, for example, could examine thousands of tax returns and isolate certain areas where there are anomalies in a matter of milliseconds.

Getting a step ahead

Businesses may use internal or external resources to prepare for an IRS employment tax audit. Internal audits may be better suited for larger employers with an in-house tax department responsible for filing tax returns and other levels of compliance.

For smaller employers, seeking the help of an independent auditor can provide deeper knowledge into the issues being probed.

Staying ahead of an employment tax audit can be a challenging task. Reach out to the CPAs at Magone & Company to ensure you’re on track for IRS compliance.

This information is provided for educational purposes and should not be construed as financial or legal advice. Please consult your accountant or attorney for advice specific to your situation.

Tax Penalties: How to Get the IRS to Forgive & Forget

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Whether you didn’t file your tax return on time or didn’t prepare an accurate return, one thing is for certain: the IRS will come after you waving a penalty flag.

Mistakes happen, but the price tag per penalty varies. For example, the failure-to-file penalty is 5% of your unpaid taxes for each month that the return is late. If five months go by and you haven’t paid up, the failure-to-file penalty will max out, but the failure-to-pay penalty continues to grow until it’s settled, up to 25%.

There is some good news, however. If the IRS issues a penalty, there are circumstances that may grant you some relief:

Reasonable cause

The IRS may remove or reduce a penalty if you attempted to comply with tax laws but were unable due to conditions out of your control, such as:

  • Death or serious illness of a close family member
  • System issues that delayed a filing
  • A fire or other natural disaster

First-time abatement or other administrative waiver

A first-time abatement penalty waiver is the most common administrative waiver for individual taxpayers and businesses that receive their first tax penalty. To qualify, you must meet the following conditions:

  • You’ve demonstrated past compliance, meaning you’ve filed the same type of return for the past three years and didn’t receive any penalties during that time.
  • You’re currently compliant, having filed all required returns or filed a valid extension, and you’ve paid all other taxes due or are under a payment plan.

Statutory exception

According to the IRS, the following reasons may constitute what is known as a statutory exception:

  • Mailed a return on time but still received a penalty
  • Received incorrect IRS advice
  • Lived in an area affected by a federal disaster
  • Were stationed in a military combat zone

Wiping the slate clean

To apply for relief due to any of these reasons, your first step is to contact the IRS via the toll-free number on your penalty notice. If the IRS is unable to approve your request over the phone, you’ll be given next steps toward appealing your penalty.

Our advice? Don’t go it alone. A trusted tax advisor can help you sort through the IRS rules and ensure you have a case for penalty forgiveness. Reach out to the tax resolution experts at Magone & Company today at (973) 301-2300 for assistance.