Prose by Tax Pros - Another Article by Hale E. Sheppard

The deadlines for seeking Employee Retention Credits (“ERCs”) are fast approaching, large numbers of claims are being filed, and fears of widespread fraud abound. What is the solution? The IRS says pumping the proverbial brakes is the way to go. It recently imposed a “moratorium” of at least three months on processing future ERC claims. The IRS made several other important announcements, too. These include the start of “enhanced compliance reviews” on all ERC claims, a “special withdrawal option” for taxpayers with pending yet unpaid claims, and a future “settlement program” for taxpayers that previously received ERCs but did not really deserve them. This article, the latest in a multi-part series, explores these recent IRS actions, fitting them into the broader context of ERC events over the past three years and into the future.

Congress introduced the employee retention credit (“ERC”) back in March 2020, some taxpayers are still making ERC claims today, and others have the ability to do so until April 2025. These protracted solicitations have triggered questions about the validity of recent ones. Some ask, for example, why taxpayers with legitimate ERC claims did not file them right away, on their original employment tax returns. One reason is that the IRS did not issue certain guidance until months after Congress enacted the relevant laws. Another is that some of that guidance had retroactive effect. This meant that taxpayers had to file amended employment tax returns, sometimes months or years after the fact, in order to take advantage of favorable modifications to the ERC rules. This article, the latest in a multi-part series, analyzes changes over time that have led to the continuation of ERC claims.

There are thousands of blogs, articles, comments, advertisements, infomercials and more about the Employee Retention Credit (“ERC”). Regardless of their slant, all these items generally have one thing in common: a disturbing lack of substance. Everything in the ERC realm seems to have devolved into sound bites based on partial information, which is not helpful for taxpayers and advisors who are looking to truly understand the situation and make informed decisions.

This article, which is the second in a multi-part series, tries to reverse this trend. It explains the reasons why Congress introduced the ERC, four laws and IRS guidance, periods during which taxpayers can still claim ERCs, initial problems detected by watchdogs, series of IRS warnings, training materials for audit personnel, consequences for taxpayers filing excessive claims, and extended assessments periods. In short, the goal of this article is to supply substance for taxpayers and advisors as the IRS implements enforcement actions.

The U.S. economy is humming along, a major disruption occurs, Congress introduces tax incentives to stabilize matters, the IRS provides guidance to implement them, some taxpayers exploit voids and ambiguities, and the IRS takes actions to halt perceived abuses. This is a timeless tale that has recently centered on the Employee Retention Credit (“ERC”). To understand the inevitable clashes, one must first appreciate the applicable rules. These are complicated, of course, deriving from several laws passed in rapid succession and administrative guidance issued on their heels. This article, the first in a multi-part series, explores the ERC rules from start to finish.

Many taxpayers desperately needed an economic injection from the government to survive massive problems caused by COVID. Needing financial benefits is one thing, but qualifying for them is another. When it came to eligibility for employee retention credits (“ERCs”), employers had to demonstrate several things, including that their total revenue dropped by a certain percentage or that a governmental mandate triggered a partial or full suspension of their business operations. The IRS is convinced that some employers are abusing the rules, relying on suspensions that did not reach the relevant thresholds. The article addresses this important issue, focusing on the impact of supply chain problems.

In life, things often are going great, until they are not. This is true in the tax world, too. Congress introduced the employee retention credit (“ERC”) in early 2020 to assist businesses struggling because of COVID. Things started positively, but they changed when the IRS began identifying significant numbers of aggressive or fraudulent claims. The IRS increased enforcement efforts. This scrutiny has already triggered finger pointing in various directions, with more on the way. This article explains the congressional and IRS guidance regarding ERCs, deadline for making claims, potential consequences facing taxpayers and advisors engaged in improper behavior, and obscure issues sparked by two recent ERC events events.

You start with the macro and then move to the micro, as time permits and need demands. This method is followed in many contexts, including taxes. Congress first introduced the employee retention credit (“ERC”) in early 2020, and then made several legislative tweaks thereafter. The IRS, likewise, issued multiple Notices over the years supplying more detail. Naturally, as time passes and unanticipated issues arise, the guidance becomes more focused, more granular. That is precisely the case with ERCs. This article summarizes the main ERC rules, prior guidance on whether governmental employers are eligible for ERCs, and a recent Chief Counsel Advice exploring the status of federal credit unions.

The IRS has argued that the existence of Tax Result Insurance might deprive an entity of partnership status, taxpayers cannot claim deductions for premiums paid, and purchasing coverage supposedly demonstrates that taxpayers lack reasonable cause for their positions, such that penalties apply.

This article explains why certain taxpayers are acquiring insurance, two major types of coverage, several challenges the IRS is now raising, and why incipient IRS actions should concern all companies offering tax-related insurance and all taxpayers obtaining policies, not just those in the easement realm.

Taxpayers with Canadian retirement plans have long faced tricky issues when it comes to U.S. income taxes and information-reporting duties. As the situation evolved over time, the IRS issued several pieces of guidance that facilitated tax-deferral and decreased disclosure obligations. The IRS ultimately announced that it would grant automatic, retroactive and prospective, tax-deferral elections. Nonetheless, the IRS continues to challenge taxpayers who fall into non-compliance.

This article explains the normal tax and reporting requirements for taxpayers with worldwide reach, special rules applicable to Canadian retirement plans, evolution of solutions offered by the IRS, and a recent Tax Court case highlighting all the key issues.

It appears that the IRS is on its way to stopping taxpayers from taking what it considers improper positions related to charitable remainder annuity trusts (“CRATs”). The IRS has prevailed in two recent cases, with the Tax Court rejecting all arguments raised by the taxpayers. Consequently, taxpayers with similar CRATs must make a critical decision. Should they hunker down and prepare to fight, or is pro-actively approaching the IRS a better option? This article supplies an overview of tax issues concerning CRATs, explains various actions taken by the IRS to halt what it deems abusive behavior, analyzes the relevant Tax Court decisions, and examines several options remaining for taxpayers with imminent CRAT problems.