By Charles Dean Smith, Jr., CPA

The deadline for claiming the Employee Retention Credit (ERC) is getting closer. If you are an eligible business or nonprofit organization, you still have time to determine your eligibility and file your claim. That time, however, will run out soon.

The ERC eligibility period ran from March 13, 2020 to September 30, 2021 (or July 1, 2021 to December 31, 2021 for a recovery startup business). Eligible businesses and nonprofit organizations continue to apply for refunds due to them by filing amended payroll tax returns on Form 941-X. Generally, a tax return amended to claim a refund must be filed within three years of the date the original return was filed, or two years from the date you paid the tax, whichever is later.

The first return on which you could claim an ERC refund was the 2020 Quarter 2 return. The original return (Form 941) was due July 31, 2020. By the normal rules, assuming you made timely payments of the taxes, your ERC claim would be due very soon: July 31, 2023.

Because of a quirk in the rules of payroll tax returns, however, you have extra time. The IRS considers all payroll tax returns (Form 941) to be filed on the following April 15. In other words, your 2020 payroll tax returns were due July 31, 2020 (Quarter 2), October 31, 2020 (Quarter 3), and January 31, 2021 (Quarter 4), but the IRS treats them all as filed on April 15, 2021. You therefore have until April 15, 2024 to file your 2020 ERC refund claims.

The same logic applies to 2021 ERC refund claims. All 2021 payroll tax returns are treated as filed on April 15, 2022. You have three years from that date. Your 2021 ERC refund claims are due April 15, 2025.

Be careful not to confuse your deadline date, which is called the Refund Statute Expiration Date (RSED), with the IRS’s deadline for auditing an ERC refund claim, which is the Assessment Statute Expiration Date (ASED). For most of the ERC period, the RSED and ASED are the same. The IRS must begin an audit of 2020 ERC claims by April 15, 2024. They must begin an audit of 2021 claims for Quarter 1 and Quarter 2 by April 15, 2025.

For Quarter 3 and Quarter 4 of 2021, though, when the American Rescue Plan law extended ERC to those quarters, the ASED (the audit deadline) was set at five years. For those two quarters, the IRS has until April 15, 2027 to audit the tax returns. But that’s not all. In the case of false or fraudulent tax returns with the intent to evade tax, there is no statute of limitations for auditing the return.  So please remember to maintain all of your financial and payroll records pertaining to your ERC calculations and amended returns.

As we have discussed in our previous articles, the IRS has promised rigorous enforcement of the ERC laws, including criminal prosecution for false returns and fraud. They believe there have been numerous false claims, especially when business owners are targeted by aggressive third parties who persuade ineligible taxpayers that they are eligible. We at PBMares continue to urge our clients to be cautious when they receive solicitations about their ERC eligibility. Always consult your tax advisor before moving forward. While we continue to work with clients who are legitimately eligible, more often these days we have to explain that the promises clients hear from these solicitations are not true.

Know the rules – and if you are eligible, let’s get your ERC refund claim filed in time. The first deadline to file your claim is April 15, 2024.

For help in identifying your eligibility for ERC prior to the filing deadlines in 2024 and 2025, contact us. We can also advise on evaluation of legitimate ERC claims, related IRS correspondence, and possible IRS audit assistance on future ERC examinations. For more information, contact Charles Dean Smith or Ed Yoder, leaders on our ERC Tax team.