Frost Law
The Internal Revenue Service (“IRS” or the “Service”) has begun to send Notices CP220 (the “Notices”) to taxpayers who claimed Employee Retention Credit (“ERC” or the “Credit”) refunds but failed to timely file Forms W-2 with the Social Security Administration (“SSA”). These letters request immediate repayment of the Credit, claiming that the otherwise eligible employer did not pay wages during the tax periods at issue. By these actions, the IRS appears to be rewriting the law underlying ERC as it sees fit, and for its own administrative ease without legislative authorization.
Notices CP220 are intended to notify taxpayers of errors in their tax returns which the IRS has corrected and for which the Service is now requesting payment. The IRS can obtain information which suggests that an error has been made from a variety of sources within the government, and in the case of the recent Notices related to ERC, the IRS appears to be relying on information obtained from the SSA.
The Notice does not appear to offer any appeals rights should the taxpayer disagree. Rather, the only information provided to dispute the change is a toll-free telephone number. Otherwise, the IRS indicates that if it does not hear from the taxpayer (within an undetermined amount of time) it will assume the taxpayer agrees with the assessment. The Notice also indicates that three weeks after the mailing of the Notice, further interest and penalties will be added to the amount due.
The Notices indicate that the taxpayer failed to timely file its Forms W-2 with the SSA. The IRS, in an FAQ published on July 28, 2023, takes the position that it “will not process ERC claims for refund if the claim for refund is filed after Forms W-2 were due and [the taxpayer] did not file Forms W-2.”1 The IRS does not specify in its FAQ what the legal basis is for that position, nor does it state why simply failing to file Forms W-2 with a separate government agency should result in ERC ineligibility.
In the cases seen thus far, it appears that the IRS neither takes into account that Forms W-2 were later filed with the SSA or that corrected Forms W-2 were later provided to the IRS. In fact, the Service, in at least one instance, did not follow its own guidance when it initially processed the amended returns for an employer it now claims failed to timely file Forms W-2 . Rather the IRS has taken the disconcerting step of requesting the return of all ERC refunds months after dispersing them despite subsequently receiving information that the business did pay Form W-2 wages and reported those wages to the SSA.
The IRS does not have the authority to rewrite the law to make its administrative burden easier. As aforementioned, the Service does not state in its FAQ the underlying authority it seemingly purports to have to disallow refund claims or reverse previously process refunds purely based on information sent to other government agencies. Nowhere in the CARES Act or other enabling legislation for ERC does it state that the Service is to cross-reference SSA data and either proactively or retroactively deny claims. While the IRS may claim its general authority to audit returns and facilitate the internal revenue system, these actions appear overreaching and may cause economic harm to taxpayers.
With this action the IRS appears to be instituting a new requirement to be considered an employer who is eligible to receive for an ERC refund. At its core, the Service is telling taxpayers who may have been late-filed Forms W-2, that even if through no fault of their own, that they are permanently ineligible for an ERC refund. This bar on eligibility appears nowhere within the text of the laws setting forth the eligibility for ERC.
Receiving one of these Notices can be nerve-racking. It is important to take immediate action to help prevent any determinations the IRS has made from becoming final. Any taxpayer receiving a Notice CP220 or other notices related to their ERC claims should contact a trusted tax expert as soon as possible.
Frost Law attorneys have substantial experience in tax controversy matters, ERC eligibility analysis, and refund claim disputes. If you need assistance in determining how to expedite an ERC claim or request TAS assistance, don't hesitate to reach out to us at (410) 497-5947 or schedule a confidential consultation with our team of expert tax attorneys
The Internal Revenue Service (“IRS” or the “Service”) has begun to send Notices CP220 (the “Notices”) to taxpayers who claimed Employee Retention Credit (“ERC” or the “Credit”) refunds but failed to timely file Forms W-2 with the Social Security Administration (“SSA”). These letters request immediate repayment of the Credit, claiming that the otherwise eligible employer did not pay wages during the tax periods at issue. By these actions, the IRS appears to be rewriting the law underlying ERC as it sees fit, and for its own administrative ease without legislative authorization.
Notices CP220 are intended to notify taxpayers of errors in their tax returns which the IRS has corrected and for which the Service is now requesting payment. The IRS can obtain information which suggests that an error has been made from a variety of sources within the government, and in the case of the recent Notices related to ERC, the IRS appears to be relying on information obtained from the SSA.
The Notice does not appear to offer any appeals rights should the taxpayer disagree. Rather, the only information provided to dispute the change is a toll-free telephone number. Otherwise, the IRS indicates that if it does not hear from the taxpayer (within an undetermined amount of time) it will assume the taxpayer agrees with the assessment. The Notice also indicates that three weeks after the mailing of the Notice, further interest and penalties will be added to the amount due.
The Notices indicate that the taxpayer failed to timely file its Forms W-2 with the SSA. The IRS, in an FAQ published on July 28, 2023, takes the position that it “will not process ERC claims for refund if the claim for refund is filed after Forms W-2 were due and [the taxpayer] did not file Forms W-2.”1 The IRS does not specify in its FAQ what the legal basis is for that position, nor does it state why simply failing to file Forms W-2 with a separate government agency should result in ERC ineligibility.
In the cases seen thus far, it appears that the IRS neither takes into account that Forms W-2 were later filed with the SSA or that corrected Forms W-2 were later provided to the IRS. In fact, the Service, in at least one instance, did not follow its own guidance when it initially processed the amended returns for an employer it now claims failed to timely file Forms W-2 . Rather the IRS has taken the disconcerting step of requesting the return of all ERC refunds months after dispersing them despite subsequently receiving information that the business did pay Form W-2 wages and reported those wages to the SSA.
The IRS does not have the authority to rewrite the law to make its administrative burden easier. As aforementioned, the Service does not state in its FAQ the underlying authority it seemingly purports to have to disallow refund claims or reverse previously process refunds purely based on information sent to other government agencies. Nowhere in the CARES Act or other enabling legislation for ERC does it state that the Service is to cross-reference SSA data and either proactively or retroactively deny claims. While the IRS may claim its general authority to audit returns and facilitate the internal revenue system, these actions appear overreaching and may cause economic harm to taxpayers.
With this action the IRS appears to be instituting a new requirement to be considered an employer who is eligible to receive for an ERC refund. At its core, the Service is telling taxpayers who may have been late-filed Forms W-2, that even if through no fault of their own, that they are permanently ineligible for an ERC refund. This bar on eligibility appears nowhere within the text of the laws setting forth the eligibility for ERC.
Receiving one of these Notices can be nerve-racking. It is important to take immediate action to help prevent any determinations the IRS has made from becoming final. Any taxpayer receiving a Notice CP220 or other notices related to their ERC claims should contact a trusted tax expert as soon as possible.
Frost Law attorneys have substantial experience in tax controversy matters, ERC eligibility analysis, and refund claim disputes. If you need assistance in determining how to expedite an ERC claim or request TAS assistance, don't hesitate to reach out to us at (410) 497-5947 or schedule a confidential consultation with our team of expert tax attorneys
