Understanding ERC Claims: Liability, Third-Party Payors, and Best Practices

As businesses seek financial relief through the Employee Retention Credit (ERC), it’s vital to understand the implications and responsibilities tied to filing such claims. One critical aspect is the role of third-party payors, such as payroll processing companies, in submitting these claims. In this blog post, we’ll explore the liability associated with ERC claims, particularly concerning third-party payors, and the importance of accuracy in filings.

Liability of Third-Party Payors

Third-party payors, including payroll processors and tax professionals, can indeed be held liable for inaccuracies in the ERC claims they file on behalf of businesses. If a claim is deemed incorrect or fraudulent, these entities may face significant repercussions, including:

• Financial Liability: Payroll processors or tax advisers who submit erroneous filings may be held financially responsible for any penalties or liabilities that arise from those filings. This could include restitution amounts that the IRS may pursue from the business or the preparer.
• Reputational Damage: Inaccuracies can damage the reputation of the third-party payor, leading to a loss of trust among clients and potential legal headaches. Businesses often rely on these services with the expectation of professional standards, and any lapses may result in customer attrition.

Disclosure Requirements

Additionally, any individual or firm engaged in preparing documents or information filed for the ERC may be required to disclose their involvement in the process. This includes:

• Preparation Disclosure: The IRS may require that any professionals or firms who helped prepare the ERC claim are identified. This ensures accountability and allows the IRS to target any inaccuracies back to the preparers if issues arise.
• Advisory Responsibilities: Professionals involved should be aware that they have a responsibility to provide accurate guidance and preparation services. Failing to uphold these standards could lead to audits or investigations extending to the preparer’s practices.

Best Practices for Businesses and Third-Party Payors

Given the potential liabilities and the current scrutiny of ERC claims, both businesses and third-party payors should adopt best practices:

1. Thorough Review Processes: Establish robust internal review procedures to ensure all information and calculations are accurate before submission.
2. Engage Qualified Professionals: Use reputable and experienced tax professionals or payroll services familiar with ERC regulations to minimize risks associated with errors.
3. Maintain Detailed Records: Keep comprehensive documentation of all claims submitted, including communications and calculations. This can help in case of audits or reviews.
4. Regular Training and Updates: Ensure that all staff involved in preparing claims stay informed on the latest IRS guidance and changes related to the ERC to maintain compliance.
5. Transparency: Promote open communication between businesses and their payroll processors regarding eligibility and documentation to avoid confusion.

Conclusion

As businesses navigate the complexities of the Employee Retention Credit, understanding the liabilities that third-party payors face when filing claims is crucial. With approximately 15% of claims currently under investigation for fraud, the stakes are high for both businesses and their advisors. By prioritizing accuracy and employing best practices, all parties can help safeguard against potential liabilities and ensure they responsibly manage the ERC claims process.