Category: Blog

As our population ages, seniors increasingly become targets for a variety of scams. These fraudulent schemes can have devastating financial and emotional impacts on older adults, who may be more vulnerable due to factors such as isolation, cognitive decline, or simply a trusting nature. The Internal Revenue Service (IRS) has been proactive in issuing warnings and providing guidance to help protect seniors from these threats. This article will delve into the nature of scams targeting seniors, what to be on guard for, awareness and protection strategies, IRS advice, and steps to take if one falls victim to a scam.

Understanding the Threats – Scammers employ a range of tactics to deceive seniors, often posing as representatives from government agencies, familiar businesses, or charities. The IRS, in its news release IR-2024-164, highlights the rising threat of impersonation scams targeting older adults. These fraudsters use fear and deceit to exploit their victims, often pressuring them into making immediate payments through unconventional methods such as gift cards or wire transfers.

Common Scams Targeting Seniors

• Impersonation of Known Entities: Fraudsters often pose as representatives from government agencies like the IRS, Social Security Administration, or Medicare. By spoofing caller IDs, they can deceive victims into believing they are receiving legitimate communications. These scammers may claim that the victim owes money, is due a refund, or needs to verify personal information.
• Claims of Problems or Prizes: Scammers frequently fabricate urgent scenarios, such as outstanding debts or promises of significant prize winnings. Victims may be falsely informed that they owe the IRS money, are owed a tax refund, need to verify accounts, or must pay fees to claim non-existent lottery winnings.
• Pressure for Immediate Action: These deceitful actors create a sense of urgency, demanding that victims take immediate action without allowing time for reflection. Common tactics include threats of arrest, deportation, license suspension, or computer viruses to coerce quick compliance.
• Specified Payment Methods: To complicate traceability, scammers insist on unconventional payment methods, including cryptocurrency, wire transfers, payment apps, or gift cards. They often require victims to provide sensitive information like gift card numbers.

Awareness and Protection Strategies

Awareness is the first line of defense against scams. Seniors and their caregivers should be educated about the common tactics used by scammers and the red flags to watch for. Tips for Seniors:

• Verify the Source: Always verify the identity of the person or organization contacting you. If you receive a call, email, or text message claiming to be from the IRS or another government agency, do not provide any personal information. Instead, contact the agency directly using a verified phone number or website.
• Be Skeptical of Unsolicited Communications: Be cautious of unsolicited communications, especially those that request personal information or immediate payment. Legitimate organizations will not ask for sensitive information through unsecured channels.
• Do Not Rush: Scammers often create a sense of urgency to pressure victims into making hasty decisions. Take your time to verify the legitimacy of the request and consult with a trusted family member or friend before taking any action.
• Use Secure Payment Methods: Avoid making payments through unconventional methods like gift cards, wire transfers, or cryptocurrency. Legitimate organizations will not request payment using these procedures.
• Monitor Financial Accounts: Regularly monitor your bank and credit card statements for any unauthorized transactions. Report any suspicious activity to your financial institution immediately.

Tips for Caregivers

• Educate and Communicate: Regularly discuss potential scams with the seniors in your care. Ensure they understand the common tactics used by scammers and encourage them to reach out to you if they receive any suspicious communications.
• Set Up Protections: Help seniors set up protections such as fraud alerts on their credit reports and two-factor authentication on their online accounts.
• Monitor Communications: If possible, monitor the mail, phone calls, and emails that the senior receives. This can help identify potential scams before any damage is done.
• Encourage Reporting: Encourage seniors to report any suspicious activity to the appropriate authorities. Reporting scams can help prevent others from falling victim to the same schemes.

IRS Advice and Resources – The IRS has been actively engaged in efforts to protect taxpayers, including seniors, from scams and identity theft. The Security Summit partnership between the IRS, state tax agencies, and the nation’s tax professional community has been working since 2015 to combat these threats. Remember that:

• The IRS will never demand immediate payment via prepaid debit cards, gift cards or wire transfers. Typically, if taxes are owed, the IRS will send a bill by mail first.

• The IRS will never threaten to involve local police or other law enforcement agencies.
• The IRS will never demand payment without allowing opportunities to dispute or appeal.
• The IRS will never request credit, debit or gift card numbers over the phone.

Key IRS Recommendations

• Know the IRS Communication Methods: The IRS will never initiate contact with taxpayers by email, text message, or social media to request personal or financial information. Initial contact is typically made through a mailed letter.
• Questions or Concerns About Your Taxes: Contact your tax professional.
• Report Scams: If you receive a suspicious communication claiming to be from the IRS, report it to the IRS at phishing@irs.gov. You can also report scams to the Federal Trade Commission (FTC) at www.ftc.gov/complaint.
• Protect Personal Information: Be cautious about sharing personal information. The IRS advises taxpayers to use strong passwords, secure their devices, and be wary of phishing attempts.
• Seek Professional Help: If you believe your identity has been compromised, contact this office immediately. The IRS has special provisions for victims of identity theft to protect their tax filings.

What to Do if Scammed – Despite all precautions, scams can still happen. If you or a loved one falls victim to a scam, it’s important to act quickly to minimize the damage.Immediate steps to take:

• Stop Communication: Cease all communication with the scammer immediately. Do not provide any further personal information or make any additional payments.
• Report the Scam: Report the scam to the appropriate authorities. This includes the IRS, the FTC, and your local law enforcement. Reporting the scam can help authorities track down the perpetrators and prevent others from being victimized.
• Contact Financial Institutions: Notify your bank, credit card companies, and any other financial institutions involved. They can help you monitor your accounts for fraudulent activity and take steps to protect your assets.
• Place Fraud Alerts: Place a fraud alert on your credit reports with the major credit bureaus (Equifax, Experian, and TransUnion). This can help prevent further identity theft.
• Review Credit Reports: Obtain and review your credit reports for any unauthorized accounts or activities. You are entitled to a free credit report from each of the major credit bureaus once a year through www.annualcreditreport.com. You may even want to put a freeze on your credit, which will help prevent fraudsters from opening credit accounts in your name or accessing your credit reports. To do so you’ll need to contact the three major consumer credit bureaus. The drawback to doing so is the inconvenience of contacting the credit bureaus again if you need to lift the freeze on your credit card(s).
• Secure Personal Information: Change passwords and security questions on your online accounts. Consider using a password manager to create and store strong, unique passwords.

Long-Term Steps

• Monitor Accounts: Continue to monitor your financial accounts and credit reports regularly for any signs of fraudulent activity.
• Educate Yourself: Stay informed about the latest scams and fraud prevention strategies. The IRS and other organizations regularly update their websites with new information and resources.
• Seek Support: Falling victim to a scam can be emotionally distressing. Seek support from family, friends, or professional counselors if needed.
• Legal Assistance: In some cases, it may be necessary to seek legal assistance to resolve issues related to identity theft or financial fraud.

Scams targeting seniors are a growing concern, but with awareness and proactive measures, older adults can be protected from these threats. By staying informed, verifying communications, and taking swift action, when necessary, seniors and their caregivers can safeguard against fraud and ensure financial security.

Remember, if you or a loved one is ever in doubt about a communication or request, it’s always better to be safe than sorry. Reach out to trusted family members, friends, or professionals for advice and support. Together, we can create a safer environment for our seniors and help them enjoy their golden years without the fear of falling victim to scams.

Starting your own business is an exciting journey filled with opportunities and challenges. As a young entrepreneur, you have the energy, creativity, and drive to turn your ideas into reality. This comprehensive guide will walk you through the essential steps to launch your business successfully. By following this blueprint, you’ll be well-prepared to navigate the complexities of entrepreneurship and set your business up for long-term success. And remember, before you get started, reach out to us for personalized advice and support tailored to your unique needs.

1. Find the Right Opportunity

The first step in starting a business is identifying the right opportunity. Consider your expertise, interests, and the amount of time and money you can invest. Some businesses can be launched from home with minimal overhead, especially in the e-commerce and remote work sectors. Evaluate your ideas to ensure they are viable and have the potential to generate revenue. If you’re unsure where to start, explore various business ideas and trends to get inspired.

2. Write a Business Plan

A solid business plan is crucial for your success. This document outlines your business goals, strategies, target market, and financial projections. It serves as a roadmap for your business and is essential when seeking funding from investors or lenders. Your business plan should include:

• Executive Summary: A brief overview of your business and its objectives.
• Business Description: Detailed information about your products or services.
• Market Analysis: Insights into your target market and competition.
• Organization and Management: Your business structure and team.
• Marketing and Sales Strategy: How you plan to attract and retain customers.
• Financial Projections: Budgets, cash flow projections, and funding requirements.

3. Choose a Business Structure

Selecting the right legal structure for your business is vital as it affects your taxes, liability, and regulatory requirements. Common structures include:

• Sole Proprietorship: Simple and easy to set up, but offers no personal liability protection.
• Partnership: Ideal for businesses with multiple owners, but personal liability is shared.
• Limited Liability Company (LLC): Provides personal asset protection and flexible tax options.
• Corporation: Offers the most protection but is more complex and costly to set up.
• S-Corporation: S-corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.

Consult with our office to determine the best structure for your business.

4. Get a Federal Tax ID

An Employer Identification Number (EIN) is necessary for most businesses to file taxes, open bank accounts, and hire employees. Applying for an EIN is free and can be done online in just a few minutes.

5. Apply for Licenses and Permits

Depending on your industry and location, you may need various licenses and permits to operate legally. Research the specific requirements for your business and ensure you comply with all regulations. This may include health inspections, zoning permits, and professional licenses.

6. Open a Business Bank Account

Separating your personal and business finances is crucial for effective financial management. A business bank account helps you track expenses, manage cash flow, and simplify tax preparation. Setting up an account is straightforward and provides a professional image for your business.

7. Understand Your Startup Financing Options

Most businesses require some initial capital to get started. While traditional business loans may not be available to new businesses, there are alternative financing options to consider:

• Personal Savings: Many entrepreneurs use their own savings to fund their startups.
• Crowdfunding: Platforms like Kickstarter and Indiegogo allow you to raise funds from the public.
• Personal Loans: Borrowing from friends, family, or financial institutions.
• Business Grants: Explore grants available for small businesses and startups.
• Equity Financing: High-growth startups may attract investors in exchange for equity.

8. Get a Business Credit Card

A business credit card can provide short-term financing and help manage cash flow. It also helps separate personal and business expenses and can offer rewards such as cashback or travel points. Ensure you use the card responsibly and pay off the balance each month to avoid debt.

9. Choose the Right Accounting Software

Accurate financial records are essential for tracking your business performance and preparing for taxes. Invest in accounting software that suits your needs and budget. As your business grows, consider hiring a bookkeeper to maintain accurate records and provide financial insights.

10. Prepare to Pay Your Taxes

As a business owner, you’ll have new tax responsibilities, including potentially paying taxes throughout the year. Develop a relationship with a tax professional to ensure compliance and take advantage of any tax breaks available to your business.

11. Protect Yourself with Business Insurance

Business insurance protects your personal and business assets from potential risks. General liability insurance is recommended for all businesses, and you may need additional coverage depending on your industry and contracts.

12. Establish Your Online Presence

An online presence is crucial for reaching potential customers and building your brand. Create a professional website and set up social media profiles to engage with your audience. Invest in search engine optimization (SEO) to improve your visibility and attract organic traffic.

13. Set Up a Payments System

If you plan to accept credit and debit card payments, you’ll need a payment processor and point-of-sale (POS) system. Consider the costs of hardware, software, and processing fees when choosing a provider. Ensure your system is secure and user-friendly to provide a seamless customer experience.

14. Hire Employees

If your business requires additional help, you’ll need to hire employees. This involves setting up payroll, obtaining workers’ compensation insurance, and complying with labor laws. Create a clear job description and hiring process to attract the right talent.

15. Get Financing to Grow Your Business

Once your business is established, you may need additional financing to expand. Explore options such as business loans, lines of credit, and equity financing to support your growth. Ensure you understand the terms and conditions of any financing you pursue.

Are You Ready? 

Starting a business is a rewarding journey that requires careful planning and execution. By following this step-by-step guide, you’ll be well-equipped to launch and grow your business successfully. Remember, we’re here to help you every step of the way. Contact us before you get started for personalized advice and support tailored to your unique needs. Let’s turn your entrepreneurial dreams into reality!

In recent years, tipping culture has seen significant changes, particularly with the rise of digital payment kiosks and self-checkout lanes. A CBS News article recently questioned, “Are tip requests getting out of hand?,” pointing out the shift from traditional tipping practices to new scenarios like tipping on to-go coffees and takeout orders.

While the pandemic initially led to an increase in tipping to support service workers, many Americans now face financial constraints due to ongoing inflation. According to a recent PYMNTS and LendingClub report, nearly two-thirds of Americans are living paycheck to paycheck. 

This raises an important question: How much should you tip, and what are the tax implications

Understanding Tipping Standards

Dr. Jaime Peters, assistant dean and professor of finance at Maryville University, suggests, “It helps to understand how people are paid.” For example, waitstaff at restaurants often receive lower base wages, with tips expected to bring their earnings to or above the minimum wage. This contrasts with other roles, like grocery store cashiers, where tipping is less common and hourly wages are higher.

As tipping expectations expand to include new scenarios, such as at digital kiosks, the question of whether or not to tip—and how much—becomes more complex. Vincent Birardi, CFP and wealth advisor at Halbert Hargrove, advises, “One situation in which you should not be compelled to tip relates back to the automated kiosk. There shouldn’t be this pressure on customers.” 

He recommends that if you receive exceptional service, a modest tip of $1 or $2 is appropriate, rather than the standard 20%.

Who Deserves a Gratuity?

Traditional tipped roles include waitstaff, taxi drivers, and salon workers. Dr. Peters told CNBC. “Tipped employees may also include front-of-house restaurant staff, bellhops, parking attendants, airport service workers, and food delivery workers,” she said. These workers often rely on tips as a significant part of their income, and tipping remains customary in these contexts.

For services where tipping is optional, such as routine car maintenance or handyman visits, Birardi recommends a 10% to 20% tip if the service is exceptional. Alternatively, providing a meal or snack for service workers can be a budget-friendly way to show appreciation for services rendered.

The Tax Implications of Tipping

Recent proposals from former President Donald Trump – the Republican Presidential nominee – and Vice President Kamala Harris – who received the Democratic nod after President Joe Biden bowed out of the race – suggest making tip income tax-exempt. The Senate bill, “No Tax on Tips Act,” introduced by Sen. Ted Cruz, proposes a 100% above-the-line deduction for cash tips, while other bills, like the “Tax-Free Tips Act of 2024,” aim to exempt tips from both income and payroll taxes.

These proposals reflect ongoing debates about how best to support tipped workers while managing tax policy. Trump and Harris’s proposals are part of a broader conversation about tax relief and economic support. However, these proposals have potential drawbacks. 

The Tax Foundation notes: 

By making one type of income (tips) exempt from income tax, while other types of income (most importantly, wages) remain taxable, the proposal would make more employees and businesses interested in moving from full wages to a tip-based payment approach. That would mean more service industries adopting the restaurant industry approach of a list price up front and an expected voluntary tip at the end of the transaction.

Political Implications and the Debate

As election season approaches, discussions about tax policy often bring tipping practices into the spotlight. Both Donald Trump and Kamala Harris have proposed changes that could significantly impact how tips are taxed. These proposals aim to alleviate the tax burden on service workers and potentially simplify the tax code. However, they also raise questions about fairness and effectiveness.

• Trump’s Proposal: Former President Trump’s tax reform proposal includes provisions to make tips tax-free. This move aims to provide immediate financial relief to service workers but could lead to unintended consequences, such as increased tax evasion and wage manipulation by employers.
• Harris’s Proposal: Vice President Kamala Harris supports a similar approach, arguing that exempting tips from taxes would provide much-needed support to workers in the service industry. However, critics argue that this could disproportionately benefit higher earners and complicate the tax system further.

A concern not addressed by either candidate are the potential issues of Social Security and Medicare. Will their proposals also include tips being exempt from Social Security and Medicare taxes? If so, this could impact workers’ retirement and Medicare benefits when they retire. Seems some of the bills introduced in Congress have considered that issue and do not exempt tips from payroll taxes while others do. We will have to wait and see.

Is There a Better Approach?

Raising the standard deduction could potentially be a more effective way to provide tax relief to low- and middle-income earners. For instance, increasing the standard deduction by $6,000 would benefit both wage earners and tipped workers, unlike the no-tax-on-tips proposal, which might disproportionately benefit higher earners and complicate the tax system.

As Dr. Peters concluded her remarks, “You can always decide to tip a little more or less based on your financial situation and your appreciation for the service provided. The thought still counts the most.”

When It’s Okay Not to Tip

While tipping is generally expected, there are specific situations where it may be acceptable to forego a tip. Here are four scenarios:

• Poor Service: If the service doesn’t meet expectations, it might be reasonable to withhold a tip. From a tax perspective, this doesn’t affect the overall tax treatment of the service.
• Prepaid Services: For services that are prepaid, such as at an all-inclusive resort, additional tipping is typically not expected.
• Gratuity Included: Some establishments include a gratuity in the bill, especially for large parties. In such cases, additional tipping is generally not required.
• Administrative Fees: Services that include an administrative fee in their charges, like online booking platforms, often replace the need for a tip. These fees are considered taxable income by the IRS.

The rise of tipping at digital payment kiosks and the proposed tax changes reflect ongoing shifts in how we view and manage tipping. While 20% remains the general rule of thumb for tipped services, it’s important to tip according to your financial situation and the service received. 

And, while the debate over tax-exempt tips continues, focusing on straightforward ways to support service workers and manage your finances effectively remains priority number one.

As we move closer to 2024, various tax proposals are emerging that could significantly impact both individuals and businesses. These plans cover a wide range of topics, from income tax rates and capital gains taxes to corporate tax changes and adjustments to tax credits and deductions.

Here’s a brief overview of some of the key areas being discussed:

• Income Tax Rates: Potential adjustments could bring relief to middle-income households, but may also affect federal revenue.
• Capital Gains Tax: Proposals suggest higher rates for high-income earners, which could influence investment decisions.
• Corporate Taxes: Changes in corporate tax rates are being considered to spur economic growth, though their effectiveness is debated.
• Tax Credits and Deductions: Expansions and revisions, particularly to the Child Tax Credit and the SALT deduction cap, are on the table.
• Estate and Gift Taxes: Modifications to exemption thresholds could impact estate planning.
• International Tax Reforms: Reforms aimed at maintaining U.S. competitiveness in a global economy are also being discussed.

These proposed changes could have wide-reaching effects on financial strategies. To delve deeper into the specifics of these plans and what they might mean for you, check out the full article from the Tax Foundation here.

As these discussions progress, it’s important to stay informed and consult with tax professionals to understand how these potential changes could affect your financial planning in the coming year.

Bowman & Company is thrilled to announce the promotions of Sydney Taylor Cranston and Maribel Galan to managerial roles within the firm. Both Sydney and Maribel have demonstrated exceptional dedication, expertise, and leadership in their respective fields, and we are excited to see them excel in their new positions.

Sydney Taylor Cranston has been promoted to Audit Manager. Sydney joined the firm in 2019 and has quickly become a key member of the Audit Department. She holds a B.S. in Business Administration (Accountancy) from California State University, Sacramento, and is a licensed CPA in California. Sydney’s journey into accounting began with a passion for problem-solving and a continuous drive to learn and grow. Over the years, she has developed expertise in audits, reviews, financial statement preparation, and compliance audits, including single audits. Sydney specializes in working with for-profit entities, non-profit organizations, and affordable housing entities. In her new role, she looks forward to continuing to solve complex challenges and supporting her team with her versatile skill set.

Maribel Galan has been promoted to Tax Manager. She joined the firm in 2019, bringing with her a solid foundation in accounting and taxation. Maribel holds both a Master of Accounting (MAcc) from the University of Southern California and an MS in Taxation from Golden Gate University. She is also a licensed CPA in California. Maribel began her career at Ernst & Young in San Francisco, where she provided audit services to technology companies before discovering her true passion for tax. She is well-regarded for her commitment to high-quality work and her technical expertise in tax law which she leverages to help clients, including family-owned businesses and high-net-worth individuals, to minimize their tax obligations. Maribel’s dedication to continuous learning and her strong work ethic have made her an invaluable member of the tax team. In her new role as Tax Manager, she is excited to continue her professional growth and expand her influence within the firm.

Congratulations to Sydney and Maribel on their well-deserved promotions!

As Boomers and Gen Xers approach retirement, effective financial planning becomes crucial to ensure a comfortable and secure future. This article outlines essential tax and financial planning strategies tailored to the unique needs of individuals nearing retirement. By understanding and implementing these strategies, you can navigate the complexities of retirement planning with confidence.

Understanding Retirement Goals

Before diving into specific strategies, it’s important to clearly define your retirement goals. Imagine Jane, a 58-year-old marketing executive, who dreams of traveling the world and spending more time with her grandchildren. To achieve this, Jane needs to assess her retirement lifestyle expectations and estimate her retirement expenses. This foundational step helps in creating a realistic financial plan that aligns with her aspirations.

Maximizing Retirement Contributions

One of the most effective ways to prepare for retirement is to maximize contributions to retirement accounts. For those over 50, catch-up contributions allow you to contribute more to your 401(k) and IRA, helping to boost your retirement savings. Take the example of Tom, a 52-year-old engineer, who increased his 401(k) contributions by taking advantage of catch-up provisions. This strategic move significantly enhanced his retirement nest egg, providing him with greater financial security.

Tax-Efficient Withdrawal Strategies

Understanding the tax implications of your retirement accounts is essential. Required minimum distributions (RMDs) must be taken from traditional IRAs and 401(k)s starting at age 73 for years 2023 through 2032. Planning your withdrawals strategically can help minimize your tax burden. Consider the benefits of Roth IRAs, which offer tax-free withdrawals. For instance, Sarah, a 65-year-old business owner, diversified her retirement accounts by converting a portion of her traditional IRA to a Roth IRA. This allowed her to manage her tax liabilities more effectively during retirement.

Social Security Optimization

Maximizing Social Security benefits requires careful planning. Delaying benefits until age 70 can result in higher monthly payments. Evaluate your financial situation to determine the optimal time to claim Social Security. John, a 67-year-old teacher, decided to delay his Social Security benefits until age 70. This decision increased his monthly benefits, providing him with a more substantial income stream during retirement.

Healthcare and Long-Term Care Planning

Healthcare costs can be a significant expense in retirement. Ensure you understand Medicare options and consider supplemental insurance to cover additional costs. Planning for long-term care is also crucial, as these expenses can quickly deplete your savings. Mary, a 60-year-old nurse, invested in a long-term care insurance policy. This proactive step ensured that she would have the necessary resources to cover potential long-term care expenses, protecting her retirement savings.

Estate Planning Essentials

Estate planning is not just for the wealthy. Having a will and, if necessary, a trust, ensures your assets are distributed according to your wishes. Be aware of the tax implications of your estate plan to minimize the tax burden on your heirs. Consider the story of Robert, a 62-year-old entrepreneur, who established a trust to manage his estate. This not only provided clarity on asset distribution but also minimized estate taxes, ensuring a smoother transition for his heirs.

Investment Strategies for Retirement

As you approach retirement, your investment strategy should balance risk and return. Diversification and proper asset allocation can help protect your savings while still providing growth potential. Consider shifting to more conservative investments as you near retirement. Lisa, a 59-year-old financial analyst, rebalanced her investment portfolio to include more bonds and dividend-paying stocks. This strategy reduced her exposure to market volatility while still generating a steady income stream.

Managing Debt Before Retirement

Carrying debt into retirement can be risky. Develop a plan to pay down high-interest debt before you retire. Reducing your debt load can improve your financial security and provide peace of mind. Mark, a 55-year-old architect, focused on paying off his mortgage and credit card debt before retiring. This decision significantly reduced his monthly expenses, allowing him to enjoy a more financially stable retirement.

Selling a Company

For those who own a business, selling the company can be a significant part of retirement planning. Properly valuing the business, understanding the tax implications, and planning the sale can ensure you maximize the financial benefits. Consider the example of Susan, a 60-year-old small business owner, who sought professional advice to prepare her company for sale. By optimizing her business operations and understanding the tax consequences, Susan was able to sell her company at a premium, providing her with a substantial retirement fund.

It’s Not Too Late To Plan

Effective tax and financial planning is essential for Boomers and Gen Xers approaching retirement. By understanding your goals, maximizing contributions, planning tax-efficient withdrawals, optimizing Social Security, preparing for healthcare costs, managing debt, and considering the sale of a business, you can ensure a secure and comfortable retirement.

To navigate these complexities and tailor these strategies to your unique situation, seek professional advice from our office. Our experts can help you analyze best practices and develop a personalized financial plan that aligns with your retirement goals.

Contact us today to start planning for a prosperous retirement.

The Employee Retention Credit (ERC) was introduced as a part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020 to help businesses keep employees on their payroll during the COVID-19 pandemic. The credit was designed to provide financial relief to businesses that experienced significant declines in revenue or were forced to suspend operations due to government orders. However, the complexity of the ERC and aggressive marketing by some promoters have led to a significant number of erroneous claims being filed.

The IRS has been diligently working to identify and address these improper claims. A recent review has revealed that a substantial portion of the claims submitted show a high risk of being improper. As a result, the IRS has announced new measures to ensure compliance and protect taxpayers.

IRS’s Current Position on ERC Claims – In a recent announcement (IR-2024-169), the IRS outlined its plans to deny tens of thousands of high-risk ERC claims while resuming the processing of low-risk claims. This decision comes after months of digitizing information and analyzing data to assess the validity of over 1 million ERC claims, representing more than $86 billion.

• High-Risk Claims – The IRS has identified that between 10% and 20% of the ERC claims fall into the highest risk category. These claims exhibit clear signs of being erroneous, or even fraudulent in some cases, and fall outside the eligibility guidelines established by Congress. The IRS will be denying these high-risk claims in the coming weeks. This group includes filings with warning signals such as:
  • Claims that significantly deviate from the established eligibility criteria.
  • Claims submitted by businesses that do not meet the revenue decline or suspension of operations requirements.
  • Claims that appear to be inflated or fraudulent.
• Medium-Risk Claims – In addition to the high-risk claims, the IRS estimates that between 60% and 70% of the claims show an unacceptable level of risk. These claims will undergo additional analysis to gather more information and improve the agency’s compliance review. The goal is to speed up the resolution of valid claims while protecting against improper payments. Taxpayers with claims in this category may experience delays as the IRS conducts further investigations.
• Low-Risk Claims – Approximately 10% to 20% of the ERC claims are considered low-risk, showing no eligibility warning signs. The IRS will prioritize the processing of these claims to ensure that eligible taxpayers receive their refunds promptly. Businesses with low-risk claims can expect to see their refunds processed in the coming months, provided there are no additional issues identified during the review.

Generally, the IRS will work on the oldest claims first, but no claims received after September 14, 2023, when the IRS’s moratorium on processing claims began, will be processed at this time. The IRS has emphasized that businesses with pending ERC claims should not call the service’s toll-free numbers as information on the status of the processing of claims isn’t available to the phone assisters.

Availability of a Voluntary Withdrawal Program -The IRS has also introduced a special ERC Withdrawal Program to help businesses that may have submitted improper claims. This program allows taxpayers to withdraw their ERC claims voluntarily, avoiding future compliance issues and potential penalties. The withdrawal process is particularly beneficial for those who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Who should consider withdrawal:

• Businesses with Unprocessed Claims – If your ERC claim has not yet been processed by the IRS, you can use the withdrawal program to request that the IRS not process your claim. This will prevent any future compliance issues and potential penalties.
• Businesses with Uncashed Refund Checks – If you have received an ERC refund check but have not yet cashed or deposited it, you can still withdraw your claim. The IRS will treat the claim as though it was never filed, and no interest or penalties will apply.
• Businesses with Concerns About Claim Validity – If you are concerned about the validity of your ERC claim and believe it may not meet the eligibility criteria, it is advisable to consider the withdrawal program. This will help you avoid potential audits and compliance actions by the IRS.

How to Withdraw an ERC Claim:

To take advantage of the claim withdrawal procedure, follow the special instructions provided by the IRS at IRS.gov/withdrawmyERC. Here is a summary of the steps:

• Consult with Your Payroll Company: If your professional payroll company filed your ERC claim, consult with them. Depending on how the claim was filed, the payroll company may need to submit the withdrawal request on your behalf.
• Submit a Withdrawal Request: If you filed your ERC claim yourself and have not received, cashed, or deposited a refund check, you can fax your withdrawal request to the IRS using a computer or mobile device. The IRS has set up a special fax line to receive these requests, enabling the agency to stop processing before the refund is approved.
• Mail the Withdrawal Request: If you are unable to fax your withdrawal request, you can mail it to the IRS. However, this method will take longer for the IRS to receive and process.
• Respond to Audit Notices: If you have been notified that your ERC claim is under audit, you can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.
• Return Uncashed Refund Checks: If you have received a refund check but have not cashed or deposited it, you can still withdraw your claim. Mail the voided check along with your withdrawal request using the instructions provided by the IRS.

The IRS’s recent actions to deny high-risk ERC claims and resume processing low-risk claims are part of a broader effort to ensure compliance and protect taxpayers. Businesses that have submitted ERC claims should carefully review their eligibility and consider the voluntary withdrawal program if they have any concerns about the validity of their claims.

It is strongly advised that all businesses exercise caution and seek professional guidance when dealing with ERC claims. The complexity of the ERC and the aggressive marketing tactics used by some promoters have led to a significant number of improper claims. By taking proactive steps, such as withdrawing questionable claims and ensuring compliance with IRS guidelines, businesses can avoid potential audits, penalties, and other compliance actions.

If you have any questions or need assistance with your ERC claim, please do not hesitate to contact our office. We are here to help you navigate this complex process and ensure that your business remains in compliance with IRS requirements.