Penalty Abatement for ERC-related Tax

By Cooper Melvin, J.D., CPA

It is no secret that the IRS is backlogged with Employee Retention Credit (ERC) filings and has yet to issue refunds to many businesses that filed retroactively for the credit. As explained below, cash flow issues may be arising for some of these businesses, or their owners, in the case of pass-through entities. Taxpayers that claimed the ERC retroactively and filed an amended income tax return reducing their deduction for the ERC qualified wages paid or incurred in the tax year for which the ERC is retroactively claimed have an increased income tax liability but may not yet have received their ERC refund.

Fortunately, in News Release 2022-89, the IRS announced that it is aware that this situation may arise. The news release reminds taxpayers that they may be eligible for relief from penalties for failing to pay their taxes if they can show reasonable cause and not willful neglect for the failure to pay, consistent with relief previously announced in Notice 2021-49.

Additionally, the IRS reminds taxpayers that administrative relief under the IRS’ First Time Penalty Abatement program may be available if the taxpayer:

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

If you filed for the ERC on a retroactive basis, experienced delays in your refund and, therefore, experienced penalties from the failure to timely pay the increased income tax, please contact BMSS at (833) CPA-BMSS. We have a team dedicated to helping our clients seek relief with this issue and we are available to discuss your unique situation.