Since this article’s publication, the IRS has released updated information that should be considered before employing this strategy. Please refer to our article, “IRS Reverses Course on ERC Claims,” for more information.
As the IRS retains an enormous backlog of claims for the Employee Retention Credit (ERC), many claimants of the credit for tax year 2021 have yet to receive notice whether their claim has been accepted or rejected. Taxpayers who claimed the credit, should have made a related wage expense adjustment on their income tax return for tax year 2021—reducing the amount of wage deductions in relation to the claimed credit. In the event an ERC claim is fully or partially denied, a taxpayer would be entitled to increase their wage deductions, thereby reducing their taxable income and potentially generating a refund to the taxpayer (plus interest). To do so, a taxpayer would file an amended 2021 income tax return or claim for refund of income taxes.
The statutory period for filing a 2021 income tax refund claim will soon be closing for many taxpayers although many still do not know whether their ERC claims will be accepted. Generally, the statute allows a taxpayer to file an amended income tax return or claim for refund of income taxes up to three years from the later of the date the original income tax return was timely filed or the original due date. To help mitigate this uncertainty, taxpayers may consider filing a protective informal refund claim with the IRS before the statutory period closes. While there is no guarantee the IRS will accept the protective refund claim, if accepted, it could preserve the right to a refund should the IRS disallow the taxpayer’s ERC claim.
How Forvis Mazars Can Help
For more information on filing a protective refund claim or with help doing so, contact a professional at Forvis Mazars today.