In 2023, the influx of ERC applications prompted the IRS to implement stricter controls on these requests for financial assistance. Some consulting firms had decided since the establishment of this program to capitalize on it to derive significant profits. Having emerged from the shadows with flashy advertisements to attract new clients in recent months, they will undoubtedly have contributed to the tightening of controls by the IRS.
Employee Retention Credit in a nutshell:
This program, implemented during the peak of the COVID-19 epidemic, aimed to support companies that had seen their activities reduced due to restrictions related to public health policies. The US government worked to define clear criteria for eligibility for this program. Briefly said, a company can theoretically claim this refundable tax credit if it has experienced a revenue loss (of at least 50% in the quarters of 2020 and at least 80% in the quarters of 2021, compared to the same periods in 2019). The amount of this aid can go up to $10,000 per employee for the period from March to December 2020. Regarding 2021, the limit is set at $7,000 per quarter per employee for the first three quarters of the year (except for the special case of «recovery startups» which can go until December 2021). Applications must be made through 941X, the filing of amended returns. Once these forms are analyzed, the IRS sends a check to the employers for the various quarters covered by the request.
The general idea of this aid was to encourage employers not to lay off their employees in a crisis context.
A (too) exploited windfall by some consulting firms:
Like any virtuous program at its inception, the Employee Retention Credit did not escape the rule and attracted the desires of the less scrupulous. Indeed, some companies decided from the establishment of this program to take the direction of its «optimization» to the extreme, going as far as to promise their prospects access to this tax credit where others would have denied them eligibility. There has been an acceleration in recent months with advertising campaigns by some players in the sector. It is easy to imagine that companies whose survival depended on this tax credit would have, for the most part, made their request within a shorter period than two years after the end date of the program. Out of the 3.6 million ERC requests, approximately 600,000 of them have not yet been approved by the IRS. This staggering number corresponds to requests made in Q3 2023. A period during which the IRS would have expected scattered requests made by some well-intentioned latecomers. This massive influx thus leads to audits, and in some cases, criminal investigations to determine the legitimacy or otherwise of the requests before unlocking the requested funds.
A program that still supported an economy suffering from COVID-19:
The goals aimed at by the «Coronavirus Aid, Relief, and Economic Security (CARES)» were nonetheless achieved with the IRS paying out approximately $230 billion as part of this plan (figures accumulated up to September 2023). Like every country with the means, the United States attempted to find a balance between aid control and flexibility regarding the needs of their economy in a disrupted context.
