How to Withdraw an Employee Retention Credit (ERC) Claim

*This episode was originally recorded as a live webinar as part of Earmark's new Webinars+ series

Has your client filed an Employee Retention Credit (ERC) claim with the IRS and now need to withdraw it? Join Roger Harris, EA and Annie Schwab, CPA, hosts of the Federal Tax Podcast, for this important episode where they will cover everything you need to know about withdrawing ERC claims.

In this episode you'll learn:
   ✅How the moratorium on ERC claims affects taxpayers
   ✅ Who is eligible to withdraw their ERC claim
   ✅ Step-by-step instructions for withdrawing ERC claims
   ✅ Where to get more help and ERC resources from the IRS

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The full transcript for this episode is available by clicking on the Transcript tab at the top of this page

All content from this podcast by SmallBizPros, Inc. DBA PADGETT BUSINESS SERVICES is intended for informational purposes only.

Creators & Guests

Host

Annie Schwab, CPA

Franchisee Operations Manager at Padgett Business Services

Host

Roger Harris, EA

President at Padgett Business Services

What is Federal Tax Updates?

CPAs, Enrolled Agents, and Tax Preparers can keep up-to-date with the latest federal tax information while earning NASBA approved CPE credits and IRS approved CE credits by listening to the bi-weekly Federal Tax Updates podcast. The hosts Roger Harris and Annie Schwab have over 75 years of tax experience between them, which has been featured in various media outlets including Wall Street Journal, USA Today, The Morning Business Report, Bloomberg Business News, and Accounting Today.

Warning: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Zach: The following episode of federal tax updates originally aired as a webinar on earmarks, New Webinars, plus series. To learn more about these. Please search for Webinars plus in the earmark app.

Roger: Thanks to everybody for joining us. Annie, how are you today?

Annie: I'm doing pretty good. What about you, Roger?

Roger: Not bad, not bad. Wish it was Friday, but you know [00:00:30] it's not. Well, it may be for somebody watching this on a recorded, but for us, it's not. If you watched any TV or listen to radio, maybe more importantly, ever heard any news? Federal tax updates podcast. You've heard us and people talk about the employee retention credit. And we've had some recent guidance changes, policies that have come out that are going to impact us [00:01:00] and how we deal with the employee retention credit. There are some additional things that we're hoping to get guidance on. So we're going to cover a lot of things in a short period of time. Again, if you've listened to our podcast, some of this will be new to you and some of it will be something you've heard before, but it is something that's not going away. Certainly, it's been with us since the early 2021, late 2020, and here we [00:01:30] are almost to wrap up 2023. And we're still dealing with it and still waiting on some some guidance. But let's kind of get started again. We're here to talk about the more recent events that we're dealing with, but I think it's helpful to go back and kind of let Andy walk us through kind of what is the IRC, in case you this is a first time for you. So you understand the basics so we can then kind of walk you through where we are today and then where we're [00:02:00] going. So any one of you kick it off and kind of go through how we have been dealing with the IRC historically and, and prepare everybody for the new stuff that we're dealing with today.

Annie: Sounds good. Yes. You are correct in that this is definitely not something new. It has been around for a while. We have seen a lot of changes come throughout this two three year period. But like Roger said, for those of you who are unfamiliar with it, the IRC stands for Employee Retention [00:02:30] Credit. It was a program that was created during the pandemic, and it was created with the intention of having companies capable of keeping their employees on and paid during their payroll cycles. And this started in 2020. Actually, March 13th was the start date and ran all the way through December of 2021. So it's quite a period of time. But like I said, the intention was to help small business owners incentivize [00:03:00] them to keep their staff, you know, working and getting paid. There's different percentages for different portions of the year, some. At one point it was, you know, maximum of $5,000 of wages paid. And that was then increased to $10,000 per quarter. And you've got these different percentages. And most of the calculations have now been clarified. And so we're not going to go into the details of the calculation, but just know that it ran from [00:03:30] March 13th, 2020 through the end of 2021 based on a quarterly kind of basis. And if we go to the next slide, you can kind of see who was qualifying for this.

Annie: Those that were eligible were what was known as we've all heard these terms fully or partially suspended operations, which of course comes with multiple definitions and explanations. Or you experienced a significant decline in gross [00:04:00] receipts. And that's comparing quarter to quarter for the most part from a previous year to a current year. And then the third qualification was what what became probably the least clear cut. And that was the supply chain interruption. So if you are a small employer or eligible employer, you didn't have to be super small. Then you could meet a qualification, one of those three bullet points to qualify for the credit for that [00:04:30] quarter of the year. And then once you determined your qualification, as well as running through the calculation based on wages paid per the employee, depending on what quarter or what month it was, you would file an amended 941 for each of those quarters. So that's how you get the money by through a payroll credit. And then of course, you then have to adjust wages on the business returns and then the associated personal income tax returns. So kind of in [00:05:00] a nutshell, it was a credit to encourage small businesses to keep their employees on. The credit was received by amending payroll tax returns. And unfortunately those were done by paper. So we did see quite a bit of a headache in the delay in processing.

Annie: But it was. A program designed to get money out fast to help people stay afloat. And then, of course, you know, if we go to the next slide [00:05:30] here. While it seemed kind of good intentions, easy process, it didn't really end. It didn't end up that way. So, um, as the pandemic came to an end, you would think that this would all be resolved. Um, let me mention that the money is not something like a A where it runs out. This is not a bucket of money that whoever gets there first gets it. And when it's gone, it's gone. This [00:06:00] is a credit that is still available. So if you are an eligible small business owner or you are a tax practitioner, your client still may qualify and you still can file the forms and get the money. But as the reason we're here today is because while the program was due to the pandemic, it went fast. They wanted to get it out, get the money to the to everyone as fast as possible. And so as a result, we didn't get the clearest guidance and it was super [00:06:30] easy to obtain the credit. So it's not like you had to attach statements or provide documentation along with these returns. It was just a calculation on an amended 941, and you sent sent the form in, they processed it and sent you the money.

Annie: So and we're talking big money here. If you think about these percentages related to the wages paid. So of course it's not uncommon when you see big money being handed out scammers come. And that's where we've been kind of living in the last year [00:07:00] or so where, you know, bad actors, so to say, or IRC mills is another term that's become very popular. A lot of companies were aggressively promoting this, um, phone calls, emails, radio ads. I mean, you see it everywhere calling and saying, hey, you qualify, let us help you. Um, and as a result, some of these claims were not legitimate fraud did result. Then the IRS started audits. And we've sort of reached a point of. There [00:07:30] are so many claims that the IRS are processing that appear to be inaccurate, false, fraudulent, however you want to say it. And so as of September 14th, the IRS came out with a moratorium. And what that did was put a stop to they were only going to process what they had as of that date. So they were encouraging people to no longer submit forms to sit tight, wait for guidance. They were going [00:08:00] to process what was in backlog, which I believe, Roger, correct me if I'm wrong, was like 600,000 claims. I think they had somewhere between.

Roger: I don't think anybody knows the exact number. Probably not between 5 and 600,000.

Annie: Yeah. So they're going to process those I think it was originally taking about 90 days. And then they said, well it'll probably take more like 180 because they're going to look at it a little bit closer. Needless to say, where we were mid September was a halt. In an effort to stop the fraud, [00:08:30] in an effort to process the returns and make sure that they were legitimate claims and get the money out. So what they said was if you sent those postmarked post dated September 14th, they would slowly get through the process. Now the moratorium is stated to last at least until the end of the year. So that could be January 1st. It could be March. Now, I'm not saying it's March don't get all worked up, but the it could be any time from there. And so if you [00:09:00] send a claim in it's just going to go sit in a warehouse. But of course what what we're dealing with now is what do we do next. How is this going to go. You know what, if you do have a legitimate claim, how long is it going to take to get my money? Can I send it in now? What should tax practitioners do? How do you address the mills. So I'm going to take a breather and I'm going to turn it over to Roger who is going to talk about sort of the next step.

Roger: Yeah. And I'm going to add a little bit of kind of color and commentary to, to what Andy has said. [00:09:30] We have to remember a couple of things. This was all done at any referenced in the middle of a pandemic, and I think we've gotten far enough away from it to forget what we all felt like and how we were all dealing with things. It also came through multiple pieces of legislation. This was not just one bill that had when it first came out. If you got a Pptp loan, you weren't eligible for the employee retention credit. And a lot of people said, well, I don't have to worry [00:10:00] about it because all of my clients got pptp loans. Then we got another piece of legislation, I think it was called the Consolidated Appropriations Act or something. Something like.

Annie: That. Yeah.

Roger: And they said, oh, well, now we're going to let you have the employee retention credit if you got a loan, but you have to coordinate with PGP. So we were getting, you know, as we were going through this, we're in the middle of the pandemic. We were also in the middle of tax season as tax practitioners. And so, you know, [00:10:30] none of us really kind of knew where we were and what to do and what to focus on in real time. Now, Andy made the point, which was a very good point, that the purpose of this was to help small businesses continue to keep their employees employed and pay them. And this was to be a way to the government to help underwrite the cost of those employees. So when the IRC was first enacted [00:11:00] and first put into place, the focus was on rushing the money out, which in hindsight, maybe wasn't the best thing to do given it's taken this long and people are still waiting for money. But when you're in a hurry to get money out, I'm talking more about Congress here. Congress was yelling at the IRS. Why is it taking so long? Get the money out. Get the money out. So things that you may have normally done to think about the accuracy of [00:11:30] a claim or do things didn't get done because that wasn't where the attention was. But eventually, as time went on and Andy mentioned the amount of money that these, you know, you see all these ads, $26,000 an employee that's real, that's that's that's real. That's true.

Annie: If you qualify.

Roger: If you qualify and but but the ads are not well guess they're misleading but they're not false. I mean it's not automatically 26,000 employee. And in some [00:12:00] cases it's zero for an employee. But do the math 26,000 employee 510 2100 employees a lot of money. So the initial push was get the money out, help these small businesses. Well somewhere which and Andy made this point, when you hand out that kind of money with very little documentation required. The bad actors are going to show up and they are going to [00:12:30] show up. They're going to make promises, they're going to stretch rules. They're going to charge huge fees. And somewhere everybody woke up and said, whoa, wait a minute. We're probably giving out money that people are not eligible for. And what do we do about it? What? How can we continue to let this go on? Because, as Andy said, the money doesn't run out. Well, guess everybody's money runs out eventually. But it seems like the federal government's money never runs out. So as long as they get a claim, they'll pay it. [00:13:00] So what brought us to the moratorium? You know, because. The whole purpose of this is to talk about the process, to withdraw the claim. But I think you have to understand how we got here, where we are now, and what's potentially going to happen next.

Roger: Understand whether withdrawing a claim is even relevant or the right thing to do. But somewhere, sometime, everybody woke up and realized we got too much money going out. And the fraudsters have taken [00:13:30] over this program and something has to be done. At the same time, we got a new IRS commissioner. Commissioner Danny Werfel came in in early 2023. So he inherited this program that prior to this point, everybody was saying, hurry up, get the money out. Now all of a sudden everybody's saying, whoa, stop the fraud. And to Commissioner Werfel's credit, he went around the country to the IRS forums. He spoke to practitioners, and he said, what do we need to do to [00:14:00] stop this fraud? What what steps need to be taken to number one, stop sending people money that they're not entitled to, because I think we all understand what happens when you get money you're not entitled to or you have money due the IRS. It can be very painful to give it back. And that could have been difficult. Yeah. I mean it's never because back the same amount it's give back the money plus penalty plus interest. And that presumes you still have the money. [00:14:30] So Commissioner Werfel, to his credit, reached out to the practitioner community, asked them for guidance, said what do we need to do? How do we stop the fraud and how do we slow down? The Mills and Congress finally started holding hearings, one of which I was a witness in, to hear from us what the problems were in the industry and in the marketplace.

Roger: And suddenly people said, how in the world are we going to get a handle [00:15:00] on this? And Commissioner Werfel and the rest of the IRS made the decision that the best thing we could do now was put a moratorium on claims and stop processing new claims, because most claims or most programs like this, you see a decline in applications the longer you get away from the law enactment. That wasn't true in the employee retention credit. The claims were the same, if not going up because of the mills. [00:15:30] So he made a decision which we supported and and did so publicly that a moratorium was the right thing to do for right now. And we've been assured that while we don't have an exact start date, there will be a start date somewhere around the first of the year. And when that happens, we will have until April 15th to continue to file claims for 2020. We may get new [00:16:00] information on what we have to send in, we may get information and I think we will get information on what if you got the money and put it in your bank account and now you want to pay it back, but that's not where we are today.

Roger: Those are things that will be coming hopefully in the near future. So right now and where we're going to turn to and I'm going to turn it back to Andy in a minute, we're going to turn to we're under a moratorium. So if you [00:16:30] send in a claim now, nothing's going to happen with it. If your claim is was in before the September 14th date, it'll get processed sometime, sometime in a big hurry, but it'll get processed. But they did come out just recently with a way. If you realize that maybe you were taking advantage of that, you didn't really qualify. And you want to withdraw your claim. That's the [00:17:00] new thing that we have today. We'll talk in a little bit about what's coming. But we're today we're under a moratorium for new claims. And Annie, let's help everybody understand how if. During this moratorium or after it's lifted, for that matter, if you believe your claim. Should not have been made. It was clearly not a valid claim. What? Who and how can those claims be withdrawn?

Annie: You [00:17:30] got it, Roger. And I'm happy to say that the moratorium was, like I said, September 14th and then this this guidance came out just barely a month longer later on October 19th. So if you're a tax practitioner, you're probably head down finishing out tax season with returns. And if you're a small business owner listening, wondering, oh my goodness, I did an IRC, what am I supposed to do now? Please know that we understand that [00:18:00] a lot of small businesses listen to the IRC mills. They were very, very aggressive. And so you're not alone if you're sitting out there getting nervous at the moment. But let me talk about withdrawing a claim. So like I mentioned just a few days ago on the 19th of October, the the IRS issued what's known as a news release and a fact sheet. Those two things commonly come together and basically indicated that if you were an employer. You and you did an claim. So there's four [00:18:30] bullet points in order to qualify for this. The first one is you adjusted the employment tax return to make the claim. Well that's how you file it. That's how you get it. So if you sent in a 941 or a similar series number that you hit that part, the other step is that no other adjustments were made. So you clearly filed the amended 941 simply to claim the IRC.

Annie: The third part is that you want to withdraw the entire amount of the claim. [00:19:00] So there's no halvsies, there's no take a portion was right. There's no oh, well, maybe I calculated it wrong. That's not this. This guidance. This is for the entire claim. And the next step is that if the IRS has not paid it or if they paid the claim, but you have not cashed or deposited the refund check, then you can qualify for this section. Clearly, it said that if you were intentionally fraudulent, withdrawing a claim is not going to, you know, give you a get [00:19:30] out of jail free card. So just keep that in mind. If you knew it was false and you filed it anyway, there still could be potential ramifications. So those are the points here. So again must have filed the 941 x. No other adjustments were made. You want to withdraw the entire amount of the claim, meaning everything that was on that 941. And that not only has the IRS either not paid you, or if they did, you haven't cashed the check. [00:20:00] So in this guidance there's basically three scenarios. So this is scenario number one that again you want to withdraw the entire claim. You have not received a refund and you have not been notified that you're under audit.

Annie: So a few months back the IRS started sending audit letters for claims. So that's what they're referring here to under audit. So if you are in this situation and you would like to withdraw the [00:20:30] entire claim, you'll make a copy of your adjusted return that 941 on the left side you're going to write withdraw. And on the right side is where you're going to put name, date, title your signature and sign it. And the service is asking that you please fax these. It's going to be they have a designated fax line just for this. And that's probably the fastest way. They also say if you need to mail it you can also mail it. So the first step is have not [00:21:00] received it and have not been notified under audit. Seems pretty simple. You make a copy, you put withdraw on one side your name signature date and you fax it in. We don't know how long it's going to take to process. It's not like you get a reply back saying we got it. Your number 100 in line, so be patient with that part of it. But at least we have, you know, some some guidance here okay. Next slide. Let's go to step number two. So this is for people [00:21:30] who have not received a refund but have been notified that their claim is under audit.

Annie: So again, they got an audit notice. If that's the case, then the taxpayer should go to their examiner and work through the process with the examiner. If you have not been assigned an examiner, you've just been given the notice. Then you'll follow the instructions on the notice. It'll say if you agree to this, if you disagree, do this and you'll walk through the process of the notice indicating that you want to withdraw the claim. So that's if you [00:22:00] have not received your money, but you've been notified that you have been selected for audit. And then the third if you'll go to the next slide. This one is if you have received the refund but you haven't cashed your deposited, so you got the money, but you haven't done anything with it, you're sort of just sitting tight and now you've decided, hey, I just want to give it back, right? I just want to give you back the money. I want to withdraw the claim all together. You do same thing where you make a copy of the [00:22:30] 941 X, you write withdraw, and then you put your name and your signature. Just like I've explained before. On this one, though, on the check you're going to write void. And in the notes section you're going to put withdrawal. Make copies of all this, the voided check, the explanation, the 941, etcetera.

Annie: And you're going to mail it to the address in Cincinnati. The address is on the slide, but this is what you would do. And they're even very specific. Don't staple, don't bend, [00:23:00] don't do this. Don't do that. Put the amended return. Make sure the signatures are there. Void the check. Write withdrawal. Make copies for yourself and then send it to that Cincinnati address. So that's sort of the three categories. Could you be here. Could you be here. Could you be here now that's what they've provided guidance for so far. Clearly we expect the guidance to come out that says oh no, but I did cash the check. Now what do I do? Or I cash [00:23:30] a check and I don't have the money to give back to you. Can I get on a payment plan or something else? So what we're waiting on that. I think Roger mentioned that we're sort of expecting something fairly quickly to address other things, and there's going to be. So many different scenarios here. I mean, this is this is the main guidance, but I suspect we'll get FAQs. We'll get what if this particular, you know, this happened with this form or that form. So I think [00:24:00] it's although it seems like a simple process. There's always the one offs. Right? Roger.

Roger: Yeah. I mean and again we're making an assumption and we have a slide. I think it may be the next slide that's actually put out by the IRS that shows you. Oh yeah. 941 so this is basically what you would do, assuming that you are withdrawing a claim.

Annie: You meet those.

Roger: Criteria. You do this unless you're withdrawing your claim, but you know it's going to happen. Somebody is going to. And we'll talk in a minute about [00:24:30] how you get in a position to even have this discussion and what's still waiting, but someone comes to you and says, look, I realize I don't qualify. I want to withdraw the claim. So you do the relatively simple step of taking the original 941 x. Putting withdrawal on it. Signing it, you send it in, fax it in, and then the next day you get a check in the mail for the 941 you just faxed in. We are assuming no one has said [00:25:00] this. No one, I guess, thought that this could happen, but you know it will to somebody that at the point that you have sent in a form. Asking for it to be withdrawn. Not having a check. And then after that you got a check. You would move to the other method of sending it. Perfect example with the check. Again, that's our opinion. The IRS, to my knowledge, has not said to do that, but don't know what else you could do at that point.

Roger: Yeah, that would certainly be better than cashing it because [00:25:30] we don't know what happens if you cash it. So certainly don't cash it. If you do nothing else in that situation, hold on to it and we'll find out if we get specific examples. But I think for the most part, if you want to withdraw a claim, it's really not that difficult. So compliment the service. I'm coming. I wondered how in the world, how in the world are they going to figure out how to pull off a 941 that's been sitting in a building? It's one of 5 or 600,000 sitting there, and I'm sure it's [00:26:00] not going to be instantaneous. They're not going to know they're smart and they're sending a fact to a dedicated fax number or dedicated mailing address. So these aren't just being dumped into the backlog. They're going to come into a different address, either by fax or by mail. They'll get different attention and eventually they'll get matched up with the original return. But something tells me that some of those that you're withdrawing will still get paid before they figure out.

Annie: There's going to be one offs. There has [00:26:30] to be the timing, the timing difference. And Jennifer, I see your comment. So this specifically states that it is the withdrawal of the entire claim. We have not received guidance about a part of a claim or an incorrect calculation or making amendments to. I do hope that that will be forthcoming. You're not alone. I've seen that question come in several times. You know, maybe it was just a minor calculation error. Maybe there was confusion with the PGP and [00:27:00] we have not seen where should you send in another 941 x? Should you indicate that a portion of it was was incorrect? This guidance that came out ten days ago was specific to withdrawing an entire claim that you feel was either fraudulent or incorrect.

Roger: Yeah. On a on a phone call announcing this, they made it clear this process is you're taking it all back. You know, there's you know, again, this is opinion [00:27:30] more than fact. 941 X has been around a long time. And if you're changing part of it, you're not withdrawing the claim per se. You're modifying the amending of the claim. And I would assume you would do that on the 941 X like you always have, because it could have been, you know, a calculation error, but this is only for full withdrawal of the entire claim and nothing else does. Any point is really on that form. You're not doing two things at once on the 941 [00:28:00] x.

Roger: So and we'll.

Annie: See. Maybe we'll get some FAQs. Maybe we'll get some examples. Maybe we'll get additional guidance mean between the moratorium, you know, a little over four weeks where we got this, I expect that we will continue to get additional additional clarification, additional guidance and and hopefully quickly.

Roger: Yeah. And let me say this. The other reason they put the moratorium in, besides just trying to shut the mills down was the IRS wanted to hear from everyone questions like Jennifer's [00:28:30] and what happens if the check comes. So they're trying to to gather real world situations and how to deal with them in a relatively short period of time, because there is pressure for the moratorium to be lifted as close to, if not right on the first of the year, so that there are still legitimate claims out there, and there needs to be time for those people to get their claims in before the statute runs out. So. [00:29:00] The IRS never does something as fast as we want them to, but they are aware of a lot of these questions. But this is clearly for only a full withdrawal of a claim. But I think Jennifer's question leads us to what's next in some real world situations of why are we even in this as practitioners? Because any we've got people coming to us who said, hey, guess what, I got half $1 million [00:29:30] claim, so what are we supposed to do as tax practitioners? And where does this moratorium, where does this withdrawal, where does this feature guidance put us? Because number one, some earlier guidance said this. If we're not qualified or knowledgeable about the IRC, we shouldn't be dealing with that taxpayer. So first question is do I even know what I'm talking about here? Enough to make a determination if this person is eligible for any claim with regard to the IRC? So let's [00:30:00] assume we determine they are any addressed it if they are qualified. It was a legitimate claim. We have the obligation to go back and amend the source returns from where the wages were paid, whether that's an individual return or an entity return and all those sorts of things. That's pretty simple. But what if we question the validity of the claim?

Annie: Right. So, Roger, you're exactly right. And we've and we've had this we've seen it where you had a client who. Fell at the mercy of an email. [00:30:30] Paid them 20%. Sometimes it's even more than that portion of the claim they sent in the 941, meaning the mill sent in the 940 ones for the client, and they received the money. Now they come to you. It's it's tax season. They're coming to you and they're saying, hey, um, first I need my amended tax returns done for my business and my related individuals. And you're saying, well, let me let me see where's where's all [00:31:00] the paperwork from the mill? Where's the calculations? Where's the proof that you qualify? And then as you're talking to the client, you're thinking, oh, I don't think you qualify. I'm fairly certain you don't meet this, you know, this criteria. So now as a tax practitioner, you're sitting there going, this was my client, but the IRS told me not to touch these ercs unless I think the claim is legitimate. This client has a claim. I don't think it's legitimate. Can I do their tax returns? Can I provide a service to them? And the answer is no.

Annie: The IRS has indicated [00:31:30] that as tax practitioners, we should not perpetuate the fraud by helping this client when we know it's false. So that puts you in a bad place. It puts the small business owner in a bad place because they truly, I'm sure there are people at clients out there that truly thought they did qualify, and they paid the mill. The mill did the did the returns. You got the money back and now the mill's gone. You don't know where they are. They don't, you know, they're not answering their phone. They're not providing documentation. [00:32:00] They've moved locations. So the mill's disappeared. And here the poor business owner sitting there going, now what? Now? Now what do I do? Um, so if they're holding the money and or you have deposited it and unfortunately, probably spent it, and now you have a client sitting there asking you to help them, and your hands are tied. We're really in a tough situation and I feel bad for the small business owners, I really do.

Roger: Yeah, yeah.

Roger: So what do you do in [00:32:30] that situation? Well, now again, let's assume that we for however, going back to the original part of this presentation, how you qualify and all those sorts of things, you've made a clear determination that you don't believe they're eligible. So right now you can't amend the returns per the IRS. And you have one tool in your toolbox, which is what we've talked about in this webinar. Pulling back the claim if that's a viable option. Right. But. How [00:33:00] many. I think when it comes to pure numbers, more people have probably got the money and put it in their bank account than are either haven't received it or are holding the check. So I don't know how many that is going to impact. But, Annie, you made a really good point that I think from a tax practitioner standpoint is advice. If someone comes to you having gone to a mill, you question the validity of the claim. Ask [00:33:30] them what documentation they have from the mill. We're hearing that they have very little. They get a copy of the 941 X. They need to go back to that mill while they're still around, and they're still trying to get other claims, get whatever other documentation they have about where those numbers on the 941 X came from, because if you get an audit, you are going to be responsible for furnishing that [00:34:00] information. And if you don't get it from the mills while they're still around, Annie's point is true. We've seen it before in other parts of tax law when the money's over. The people who were helping you get it have gone away. So please advise your clients that come to you who have used the mill, whether you believe the claim is real or questionable.

Roger: That's what I was just about to say.

Annie: Regardless of whether you think it's true or false, requesting [00:34:30] the documentation from the mills, getting everything that you could possibly need. And if you're wondering what the IRS will look at for an audit that's out on the website, there's a specific list. The things they're going to ask the client for. If you have a client that went to a mill to get the. And even if they're not under audit, let them know what that list looks like and have them start working on the documentation in case it shows up.

Roger: Now. We hope, and we expect soon to have another [00:35:00] option in our toolbox. So right now can amend the returns. Maybe we can withdraw the claim. What if they've put the money in the bank? Well, you can send it all back. But you didn't get it all. Most likely you paid a nice hefty fee to the mill. You're probably going to get penalties in interest if you just send it back without a program to do it. The service is going to give us, hopefully sooner than later, guidance [00:35:30] on how to pay back a claim that you believe you were kind of duped into getting, that you weren't really qualified, but you fell because some of these mills are really sophisticated. I mean, they got law firms. They got, you know, accounting firms. I mean, they got big budgets to do sophisticated ads and present a lot of really. Apparently good information, but they're extremely aggressive. So the service is aware of [00:36:00] all that we've been told. We don't have any details, any specifics yet, that all of those factors will be considered in the guidance on what to do about paying it back. And they recognize that if the claim was for 500,000, that the small business owner may have only received 400, so they never got the other hundred. But you're being asked to pay that back now. We have no idea at this point what that program will look like. Will it waive penalties in interest automatically? [00:36:30] Will it have an expiration date? Will it treat the money you got differently than the money that you didn't get? Will it be a payment plan? Will it be all at once? We don't know any of that today as this is being recorded. It could come out tomorrow and I hope it does. But a lot of people, before they withdraw a claim, want to wait and see what this is. Yeah.

Roger: There could be another.

Annie: Option or a better.

Roger: Option.

Roger: You know, I don't think it will be economically a better deal than giving, you know, than [00:37:00] withdrawing the claim, but who knows. So I think as you're consulting with and advising your clients, you have to let them know that this option will be presented. But we don't know what it is yet. We don't know how favorable it will be. We don't know anything about it. But I think the biggest thing that we can do, if we determine in our due diligence that these people weren't eligible for the claim. We really need to get them to come [00:37:30] clean, because the service is putting a lot of resources into the fraudulent claims. I think they're they want to be reasonable, but they recognize that there's a lot of people with a lot of money they're not entitled to. And if I mentioned this in my testimony at Congress, what's sad about this whole thing is in some instances, the people who got the check, that was the best day in their life. They just got a $400,000 [00:38:00] check from the IRS. The worst day in their life is going to be when they're told they have to pay back the 400 plus the 100 in fees, plus penalties and plus interest, and they don't have it. And that is a very possible occurrence for people who got claims from Mills or. Maybe. Not doing things the right way. So so so again, we don't have the answer to that yet. [00:38:30] But we will get one and I think we'll get one. I hate to say sooner than later because someone's going to ask me, what does that mean? And I don't really know, but I know it's a priority at the IRS. They're aware that people are waiting on it, that we don't have as practitioners, everything we need today to have a real, complete discussion with our small business owners. We know kind of half of the equation, so we need to wait on that. We need to see what it is. But I [00:39:00] really think you need to to.

Roger: Talk to your clients, talk to.

Roger: Your clients. We're we're in a really bad situation because they may have trusted us for 20 years, and we may have even told them two years ago they weren't eligible. But then they got all of us have gotten the phone calls, gotten the emails, texts. Yeah. The text. And so they went to somebody and said, hey, you're you're accounting is wrong. I can get you half $1 million. That's hard to say no to.

Annie: Especially [00:39:30] when it's so easy to get and the money's just flowing.

Roger: So then they show back up in your office at tax time and say, hey, guess what? You were wrong. I got half $1 million. So it's going to test a lot of our. Credibility, if you will, with our customers and. Hopefully they'll listen to us and some of the news from the IRS, and some of this stuff will give us the tools to to do it. Any kind of wrap it up here, kind of where are we? What is the again [00:40:00] I think the. It's not hard to get a claim withdrawn. And that's what we know right now. Look through the slides and the web. You've got an example from the IRS on what to do. But talk to the people about kind of where what are we going to be dealing with. Perhaps, you know, right around the corner when it's tax filing season, these people come to us. What advice are you going to give people sitting here today waiting on another big piece of guidance?

Roger: And Roger, I.

Annie: Will add, if you're a tax practitioner and you have [00:40:30] clients coming to you and they do have legitimate claims, do the work, prepare the forms. Don't wait until tax season when you're stretched for time. Go ahead and do the work. But we do at this point suggest holding on, not mailing it in. Some people are saying, oh, if I mail it in, then I get in line and, you know, all this kind of stuff. Well, what if they come out and they say, well, now all claims submitted after the moratorium is lifted need to have this attachment or this notarized [00:41:00] or this statement or something new, and now you've got something sitting in a warehouse and there's no way they're going to go find it. And then what do you do next? I really think doing the work and preparing the claim and then just sit tight, not forever. Just sit tight and make sure that what you're sending in is what they're asking for before you get back in this. You know, notice, response, waiting on a response, calling, sitting on hold, trying to figure out where your claim is and the process, [00:41:30] I think. Do what you can now so that you're not in the middle of April deadline tax season, but then just sit tight for guidance.

Roger: Yeah, that's great advice because what's going to happen if you, again, do all the difficult work now while you aren't under the burden of a filing season, but hold on to submit it, because if you submit it under the current rules, and let's say they ask for a list of the wages that [00:42:00] came back up, the number just make up something. I'm not saying they are. I'm making an example here. As soon as they get to your claim, you may be claim number one when the moratorium is lifted, but as soon as they open it, if the rules change, you're not going to be claim number one anymore because they're sending it back saying you need to send us.

Roger: This missing documentation.

Roger: So you went from number one to the end of the line because you didn't have the information included in the claim that they need now that the more now again, they may change [00:42:30] nothing. They may say that that would shock me because I have never I've done this for a long time, and I've seen programs hand out money from the IRS. I've never seen one where basically all you have to do is say, here's a number, send it to me. Without any kind of backup, any kind of explanation. Just I think I'm entitled to a half million dollars. Here's my address. Send me the check. So, common sense tells me now that the pressure of [00:43:00] the pandemic is behind us, that the money doesn't need to get out so quickly, that they're going to probably want a little more. They're going to probably do more about what they're asking for when they audit someone. That's the initial application, so that they can do a better job, because you know what's going to happen to the IRS five years from now. There's going to be a tigta study that talks about what a poor job they did of monitoring the fraud in the program when the lay the law was written, didn't really give [00:43:30] them any protection. So I think they're trying to do the right thing and make it such that they can do a little better job of monitoring. And and they're doing this now. They're sending back some claims before they pay them for additional information just because they look fishy. So so that was great advice. And go ahead and do the hard work and sit on the claim.

Annie: And if you got your money and even if it's legit, don't be surprised if you get an audit letter. I think those audit letters are going to be flying out for support. [00:44:00]

Roger: Yeah, this is the documentation backup priority double checking.

Roger: Commissioner Werfel inherited this problem he didn't have. He wasn't around when the law was passed. He wasn't around when there weren't any procedures. It was filed 941 and send the money. But I think he feels like that this is something that. The service because a lot of practitioners have asked for help to, because I don't think any of us like huge sums of money being sent to people who aren't eligible for it, and the potential risk of having to pay it back. [00:44:30] So. Again, if it wasn't in the middle of a pandemic, if we were coming up with this plan today, we would do so many things differently and we would have so many different ways of looking at things, because first of all, it didn't get the money out quickly, which was the goal. So a lot of businesses, by the time they got the money.

Roger: It was too late. So angry.

Roger: Yeah. So we we rushed to get money out, but we didn't get money out quickly. But we created a system where there's massive [00:45:00] amounts of fraud. So we all have to learn from this. We can't go back and fix everything that happened during the pandemic, but we can certainly learn from it and hope we never have to deal with another pandemic. But we certainly can learn on programs like this that if we're going to use the tax system to hand out money, we need to build in some protections early on and not expect the IRS to enforce their way out of it. Yeah.

Annie: Well and well, if you're not one of [00:45:30] those who generally watch our podcast, we will continue to bring you any updates that come out. We will do these podcasts. We usually do about two a month. So we are watching very closely. And as soon as something comes out, we'll make sure we get it into one of our podcasts. So stay tuned.

Roger: Yeah. And when you go to the earmark app, you know you can go back. We've done, I don't know, 16, 18, 20 podcasts not always on the IRC, but it seems to always come up. So [00:46:00] go back and listen to some of the podcasts. And we got into a little more detail on some of the things and we'll continue. That'll probably be our primary way of communicating when we get the new guidance on how to pay it back, we'll we'll drop a podcast pretty quickly after that happens. So so pay attention. If you haven't listened to the Federal Tax Update podcast, look on why you're going into earmark to get your CPE. Find our podcast and take a listen and [00:46:30] send us some suggestions. If there's other things you would like us to to have on our podcast.

Roger: Thank you.

Roger: Danny.

Annie: I think we answered all the questions. I see a few comments, but I think we're reaching the top of the hour and I really appreciate everyone's attendance participation. And like Roger said, like us, follow us and join us on another one.