PEOs May be Placing Their Clients’ ERC Refunds in Danger — Frost Law (Dec. 4, 2024)

Summary

A Frost Law tax advisory by Zachary Lyda, published on December 4, 2024, on an IRS program for Third Party Payers (TPP), such as professional employer organizations, to supplement prior ERC claims. The article states that, according to the IRS, filing a supplemental claim causes withdrawal of prior claims not included in it, and argues that new filing dates could delay clients' access to credits and affect refund suits. It cites pending legislation on claims filed after January 31, 2024, an October 2, 2024 webinar hosted by NAPEO and the IRS, and a TPP deadline of November 22, 2024 extended to December 31, 2024.

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Zachary Lyda

The Internal Revenue Service (IRS) recently announced a program for Third Party Payers (TPP), such as professional employer organizations (PEO) or certified professional employer organizations (CPEO), to supplement prior ERC claims. 1 Many tax practitioners have expressed serious concerns over how utilizing this program may negatively affect TPP clients’ ERC claims.

Have Questions? Call us for Your consultation.

First, the IRS states filing a supplemental claim will cause the withdrawal of all prior claims not included in the supplemental claim. Specifically, the IRS states, if “you are an eligible TPP and you file a supplemental claim, you'll be asking the IRS not to process your outstanding adjusted employment tax returns (Form 941-X, 943-X, Form 944-X and Form CT1-X) for the tax period, including those with other adjustments besides ERC.” 2 Utilizing this program may put the TPP in jeopardy of failing to include a client’s claim that would now be ineligible to be refiled with the IRS (e.g., 2020 ERC claims). A client could potentially assert a claim against the TPP for wrongly allowing their claim to be withdrawn whether through conscious choice by the TPP or by mistakenly neglecting to include the client’s filing in the supplemental claim.

Second, while the IRS asserts that it will keep the status of all claims filed prior to January 31, 2024, the same for internal processing purposes, these new supplemental claims may result in new filing dates and will result in further delaying clients’ access to their credits. In the example, provided by the IRS, of properly filed supplemental claims, the text within the example form expressly acknowledges the understanding that the original claim is being withdrawn by the supplemental claim. A webinar hosted by NAPEO and the IRS on October 2, 2024, seemed to confirm this understanding. The IRS representative gave this answer in a response to a question about all old returns being removed from the IRS’s systems:

Well, it is not all the old returns, it’s only those in which you've listed on that third party pay or supplemental claim, and that is correct. We would be considering those; hey we're getting rid of them as if they were never filed. The only item we're keeping from it is the date received for the first amended return that is replacing. . . (emphasis added). 3

It is unclear what, if any, authority the IRS has to cause a new filing to relate back to a previous filing date, especially for the jurisdictional requirements to later file a refund suit. When taxpayers file refund claims they must wait for six months of inaction on their claims prior to filing a suit for refund. These new filings may result in a change in filing date which would necessitate another six-month delay before clients could assert their rights in court.

Third, as some may be aware, there is pending legislation that would result in claims being filed after January 31, 2024, being voided by statute. While there would certainly be challenges to this statutory action, including a violation of property interests and estoppel, the new filing date of these supplemental claims would likely result in them being time barred despite any internal understanding with the IRS.

Originally the IRS had a deadline of November 22, 2024, for TPPs to make a supplemental claim. On the eve of the deadline, the IRS extended the deadline to December 31, 2024. 4 The way the IRS has acted haphazardly with this program, and the ERC program in general, does not inspire confidence in the IRS’s actions.

Therefore, a TPP utilizing this supplemental filing program may be placing their clients at risk of losing access to a credit its clients are rightfully owed. Additionally, the TPP may be placing itself in legal jeopardy if ERC claims its clients are owed are not paid because of actions taken by the TPP. Taxpayers who utilize a TPP/PEO/CPEO for their tax preparation work, and specifically who used one to claim their ERC refund, need to pay close attention to what their TPP does in relation to this program.

If you need assistance in determining how to expedite an ERC claim, resolve a disallowed claim, litigate a refund claim against the United States, or are worried about the actions your TPP is taking in relation to ERC, don't hesitate to reach out to us at (410) 497-5947 or schedule a confidential consultation with our team of tax attorneys.

Footnotes

- https://www.irs.gov/coronavirus/filing-a-supplemental-claim-for-the-employee-retention-credit
- Id.
- https://peoinsider.org/quick_hits/irs-announces-peo-ertc-consolidation-program-napeo-webinar-recording-available/
- https://www.irs.gov/newsroom/irs-urges-businesses-to-act-by-nov-22-to-resolve-improper-employee-retention-credit-claims-through-voluntary-disclosure-program-third-party-payer-deadline-newly-extended-to-dec-31

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Tax Advisory

PEOs May be Placing Their Clients’ ERC Refunds in Danger

Published on

December 4, 2024

Written By

Zachary Lyda

Associate

Zachary Lyda

Associate

The Internal Revenue Service (IRS) recently announced a program for Third Party Payers (TPP), such as professional employer organizations (PEO) or certified professional employer organizations (CPEO), to supplement prior ERC claims. 1 Many tax practitioners have expressed serious concerns over how utilizing this program may negatively affect TPP clients’ ERC claims.

Have Questions? Call Our Team Today.

First, the IRS states filing a supplemental claim will cause the withdrawal of all prior claims not included in the supplemental claim. Specifically, the IRS states, if “you are an eligible TPP and you file a supplemental claim, you'll be asking the IRS not to process your outstanding adjusted employment tax returns (Form 941-X, 943-X, Form 944-X and Form CT1-X) for the tax period, including those with other adjustments besides ERC.” 2 Utilizing this program may put the TPP in jeopardy of failing to include a client’s claim that would now be ineligible to be refiled with the IRS (e.g., 2020 ERC claims). A client could potentially assert a claim against the TPP for wrongly allowing their claim to be withdrawn whether through conscious choice by the TPP or by mistakenly neglecting to include the client’s filing in the supplemental claim.

Second, while the IRS asserts that it will keep the status of all claims filed prior to January 31, 2024, the same for internal processing purposes, these new supplemental claims may result in new filing dates and will result in further delaying clients’ access to their credits. In the example, provided by the IRS, of properly filed supplemental claims, the text within the example form expressly acknowledges the understanding that the original claim is being withdrawn by the supplemental claim. A webinar hosted by NAPEO and the IRS on October 2, 2024, seemed to confirm this understanding. The IRS representative gave this answer in a response to a question about all old returns being removed from the IRS’s systems:

Well, it is not all the old returns, it’s only those in which you've listed on that third party pay or supplemental claim, and that is correct. We would be considering those; hey we're getting rid of them as if they were never filed. The only item we're keeping from it is the date received for the first amended return that is replacing. . . (emphasis added). 3

It is unclear what, if any, authority the IRS has to cause a new filing to relate back to a previous filing date, especially for the jurisdictional requirements to later file a refund suit. When taxpayers file refund claims they must wait for six months of inaction on their claims prior to filing a suit for refund. These new filings may result in a change in filing date which would necessitate another six-month delay before clients could assert their rights in court.

Third, as some may be aware, there is pending legislation that would result in claims being filed after January 31, 2024, being voided by statute. While there would certainly be challenges to this statutory action, including a violation of property interests and estoppel, the new filing date of these supplemental claims would likely result in them being time barred despite any internal understanding with the IRS.

Originally the IRS had a deadline of November 22, 2024, for TPPs to make a supplemental claim. On the eve of the deadline, the IRS extended the deadline to December 31, 2024. 4 The way the IRS has acted haphazardly with this program, and the ERC program in general, does not inspire confidence in the IRS’s actions.

Therefore, a TPP utilizing this supplemental filing program may be placing their clients at risk of losing access to a credit its clients are rightfully owed. Additionally, the TPP may be placing itself in legal jeopardy if ERC claims its clients are owed are not paid because of actions taken by the TPP. Taxpayers who utilize a TPP/PEO/CPEO for their tax preparation work, and specifically who used one to claim their ERC refund, need to pay close attention to what their TPP does in relation to this program.

If you need assistance in determining how to expedite an ERC claim, resolve a disallowed claim, litigate a refund claim against the United States, or are worried about the actions your TPP is taking in relation to ERC, don't hesitate to reach out to us at (410) 497-5947 or schedule a confidential consultation with our team of tax attorneys.

Footnotes

- https://www.irs.gov/coronavirus/filing-a-supplemental-claim-for-the-employee-retention-credit
- Id.
- https://peoinsider.org/quick_hits/irs-announces-peo-ertc-consolidation-program-napeo-webinar-recording-available/
- https://www.irs.gov/newsroom/irs-urges-businesses-to-act-by-nov-22-to-resolve-improper-employee-retention-credit-claims-through-voluntary-disclosure-program-third-party-payer-deadline-newly-extended-to-dec-31

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