IRS Comments on ERC Penalty Relief Related to Claims

April 19, 2022

By Jeffery Kelson

On April 18, the Internal Revenue Service (“IRS”) issued a communication concerning possible penalty relief for taxpayers who claimed the Employee Retention Credit (“ERC”). Taxpayers who claim the credit must reduce its income tax deduction for qualified wages by the amount of the ERC for the tax year the wages were paid or incurred. Due to the IRS’s backlog in processing claims for the ERC, some taxpayers are incurring an increased income tax liability but have not yet received their ERC refund. This puts them in a difficult position by having to pay additional taxes without having the cash for remittance. This IRS communication reminds taxpayers that they may be eligible for relief from penalties for failure to pay if they can demonstrate reasonable cause and not willful neglect for the failure to pay.

In addition, taxpayers may also qualify for the IRS’s First-Time Penalty Abatement program if the taxpayer meets all three of the following criteria:

  • Did not previously have to file a return or had no penalties for the three prior years.
  • Filed all currently required returns of filed an extension of time to file.
  • Paid, or arranged to pay, any tax due.

Therefore, taxpayers are encouraged to contest any imposition of penalties for late payment of taxes where they incurred additional taxes to the claim of the ERC but had not yet received the funds. Contact EisnerAmper’s Employee Retention Credit Response Team (ERC@eisneramper.com) with questions or to learn more.

On April 18, the Internal Revenue Service (“IRS”) issued a communication concerning possible penalty relief for taxpayers who claimed the Employee Retention Credit (“ERC”). Taxpayers who claim the credit must reduce its income tax deduction for qualified wages by the amount of the ERC for the tax year the wages were paid or incurred. Due to the IRS’s backlog in processing claims for the ERC, some taxpayers are incurring an increased income tax liability but have not yet received their ERC refund. This puts them in a difficult position by having to pay additional taxes without having the cash for remittance. This IRS communication reminds taxpayers that they may be eligible for relief from penalties for failure to pay if they can demonstrate reasonable cause and not willful neglect for the failure to pay.

In addition, taxpayers may also qualify for the IRS’s First-Time Penalty Abatement program if the taxpayer meets all three of the following criteria:

  • Did not previously have to file a return or had no penalties for the three prior years.
  • Filed all currently required returns of filed an extension of time to file.
  • Paid, or arranged to pay, any tax due.

Therefore, taxpayers are encouraged to contest any imposition of penalties for late payment of taxes where they incurred additional taxes to the claim of the ERC but had not yet received the funds. Contact EisnerAmper’s Employee Retention Credit Response Team (ERC@eisneramper.com) with questions or to learn more.

About Jeffrey Kelson

Jeffrey Kelson CPA, National Corporate Tax Group Leader and a leader of services in the New Jersey office with expertise in corporate tax compliance and planning, m & a, local, state and international taxation, sales and use tax, bankruptcy and SEC issues relating to IPOs and privatization.