April Walker: Hi, everyone, and welcome back to the Tax Section Odyssey Podcast.

I'm April Walker, Senior Manager on the Tax Practice and Ethics team, and today I'm here with Chris Wittich.

We were laughing.

Is it the 72nd installment...

Chris Wittich: It seems like it.

April Walker:...of Chris and I talking about ERC?

Chris is with Boyum Barenscheer in Minnesota.

Today we're going to be talking about what the new legislation says about ERC because we're definitely still getting quite a few questions around what this means, what these changes mean, so hopefully we'll shed some light today.

Chris, welcome.

Chris Wittich: Thank you.

April Walker: Let's dig in: the H.R.1 - "One Big Beautiful Bill" - said that Quarter 3 and Quarter 4, 2021 claims are prohibited from being paid.

Let's walk through what that means for our businesses that still have claims in limbo and how that relates back to the moratorium that was in place through that date.

Let's talk about that for a bit.

Chris Wittich: If we remember back close to January 2024, there was a bill that almost got through back then, and they were going to cut off these claims January 31, 2024.

That bill never passed, but they're circling back to that same concept now, and in some respects, that same concept makes less sense now.

It seems a little less impactful, for sure, but that's what they're getting at.

What they're saying, and I will also point out to people, the House version, the Senate version, were different than what eventually got passed on the ERC.

It's important to look just at what actually passed.

What passed is that, yes, there's this early cut-off of claims, January 31, 2024, but that applies only to third and fourth quarter 2021 claims, but I'll point out that there's also a moratorium in place in theory, still, that the IRS says, we're going to hold those claims and not process them.

If somebody filed a claim in February 2024, I don't think they've received processing yet.

Now we know in the bill, if those claims are first and second Quarter '21, they, in theory, can be processed, even though the IRS is still saying they're not going to.

Now the bill is saying, those third and fourth quarter 2021 claims, if filed in February 2024, the IRS would be proper in not processing them and actually throwing them in the trash is how I would say.

These have been already sitting on a shelf just to be processed sometime in the future, and now the bill is saying, third and fourth quarter '21, we're going to toss those claims entirely.

April Walker: I know we talked a couple of months ago.

I can't remember exactly what the date was, we'll put a link to it in the show notes, but we talked, and there could be some confusion.

You could have businesses who maybe filed their claim on January 31, but the IRS marked it as received in February, so there could be this confusion around, did you file it by then?

What are you thinking about or doing about that right this minute?

Chris Wittich: I've talked to the IRS about this very issue because I've had some where they filed in January '24, and then we're either following up on it, or there's some notice about it, not a real audit but just a procedural notice.

IRS is saying, we've got this recorded as received in February '24, and I specifically asked them about this.

What happens if it's January 31, 2024, and there's this hard cutoff, and they told me that they would look at the mail date, even though that's not currently what's in their system.

They are aware of this, and they say they will do it correctly based on that mail date.

I think that remains to be seen whether or not they follow through and execute on that.

Can they execute on that?

I don't know.

In theory, yes, they're aware of it, and yes, they intend to give you credit for having filed it on January 31st, if that's when you did it.

One of the other questions I have is, there's lots of notices that we've been dealing with for the last 12 months, and it's the IRS says, we got your claim, but you didn't include the first page or the third page because we lost it.

You got to resubmit it.

If you originally filed it before this date, and then the IRS lost the signature page or lost the second page, and you got to resubmit it, are they actually, in their system, going to still give you credit for having filed it on time because they made the mistake?

Or I've had other ones where the client sent in the 941-X, but the client did not sign it at all.

They just weren't thinking, and they did not sign it, even though we told them to sign it.

If you go and remedy that because the IRS points it out to you and says, wait, you didn't sign this.

If you go and remedy that now, are you still going to get credit for having filed it before the deadline?

I don't really know.

We have other ones where they signed it, but they put the wrong description of themselves.

Like, instead of saying they're the president, they might have said shareholder or something like that.

They're remedying those signature flaws, where they did sign it, but it wasn't signed correctly.

Are you going to still get credit for that being on time?

I don't know.

We haven't seen that play out yet at the IRS, but I think that will be an interesting point of contention, but again, that tax bill applies only to that third and fourth quarter 2021.

Still the regular statute of limitations is closed on all of the years.

You can't submit a new claim now for 2020 or for 2021.

What happens if we're just remedying these problems even on a first quarter '21 claim, but I'm remedying it now in July of '25?

That original statute is closed, and we're just not entirely sure.

Are those going to get processed?

It seems like they are still going to get processed based on, at least, my experience.

April Walker: Speaking of processing, what are you and your clients seeing about processing at this time?

Chris Wittich: I've seen a lot of processing, a lot of checks happening in the last four months.

We've seen significant movement, not all.

I have clients that filed claims early January 2024, and they have got their money.

I have some that filed earlier than that that still don't, and we all had a few that we really tried to get in under this January 31 deadline.

Those ones I haven't seen hit the processing yet, but I've had some from, certainly, a lot of the fall '23.

Those have been processed, and I've seen, at least, some from January '24 actually get processed.

Hopefully that continues as they're getting through the backlog.

I guess I'm optimistic that in the next 3-6 months, perhaps all of those pending claims can get through.

The one caveat, I would say there, is PEOs.

The processing on those just doesn't appear to be happening at all, and I don't understand.

April Walker: I was going to ask about that, not letters, like asking for more information or anything like that.

Maybe they have a special room somewhere where they are.

Chris Wittich: It's a very dusty room if they have one.

The PEO stuff is really out of our control.

We can't call the IRS and figure out what's going on because it's the PEO that submitted it, but I certainly have some clients that have been stuck in PEO land with their claims, and I just have no way to find out the status on them, but we definitely have a few that are still pending and have been for 2.5, three years.

April Walker: It's wild.

We talked about prohibition on payment and processing.

Let's talk about the extension of the statute of limitation for examination.

I think this is an area where I've definitely been getting some questions.

I think you and I separately both read the new statute to try to understand what it actually said and what claims that this new law is affecting.

What can you tell us about this six-year statute?

Chris Wittich: If we go back to the original way this was phrased, the third and fourth quarter 2021 was passed as a separate bill.

There's a separate section of the tax code that applies only to these third and fourth quarter 2021 claims.

When they did that, there was already some inklings that maybe we should have a longer statute of limitations on these things, so that section already included a five-year statute of limitations.

They have revised it, and now it is six years, but they added a new definition of when that six-year starts to run, and that's the key thing.

When there's a five-year statute, that seems like a long time.

You went from three years to five years, so you got this extra time.

Now they go to six years, and initially you think, what's one more year, but what they did was they added a definition.

The six years runs from the date of the refund.

If we think about it, it runs from either when you filed the return or the date of the refund, but the date of the processing and the refund is going to be later than the original filing.

It's six years from when you get the refund, and that is a really long time because, if it took you two or three years after the original date to get the refund, you taxed six years onto that, we got a nine-year statute on this thing, but the way it's phrased, that six-year statute does not apply to 2020 claims.

It does not apply to the first two quarters of 2021, so that's a key distinction.

In the bill, it also says that these new statutes are applicable to assessments or processing that happened after the bill.

At least based on my reading, the third quarter 2021 claim that you already got, the six-year statute is not going to retroactively apply that, but you would have the five-year statute apply to that portion, and that six-year is only going to apply to the new claims, so I don't know that the six-year statute is really going to end up being in play for that many because it means your claim hasn't already been processed, and it's only third and fourth quarter 2021, so we just keep narrowing the subset of what this six-year statute applies to, and it can be a very long time, but I don't know that it's really going to be that applicable.

The other thing on the statutes that I would just remind people is that fraud does not have a statute.

When we were talking about there's been a lot of bad claims, if it's a fraudulent claim, it doesn't matter if the statute was three years or five years, or six years because there's no statute on the fraud.

If the IRS is finding a promoter that was making up a business or making up employees that did not exist or payroll that did not exist, that's fraud, and it doesn't matter what the statute is.

They can still get after them and prosecute them regardless of the timeline.

April Walker: That's helpful.

To clarify, as you're thinking about working with your clients that have maybe claims that are still outstanding or claims that have been processed, because we did have some of those questions, like, I have a claim that's been processed, what does this mean?

Chris Wittich: If your claim has already been processed, I don't think the statute is going to change, and it also said in there, if your claim was already processed, the new cutoff doesn't apply to you.

Given the moratorium, I'm not sure how that fact pattern plays out, but basically, all of this stuff is saying, this applies from here going forward.

If your claim is already done, you already got the money, the rules that existed then apply, and you don't have to worry about these new changes.

April Walker: There were a couple of other changes.

Anything else you want to note around, I think there were some penalties.

What of that is interesting to people?

Chris Wittich: There's a bit in there about the promoter definition and increased penalties for failure to comply with due diligence.

That sounds like they're ramping up the penalties and the enforcement tools that the IRS can use, and that's true, but again, a lot of that stuff is going to apply prospectively in the future.

Who is currently being a ERC promoter?

No one because you can't file a claim anymore, so that doesn't really hit very hard.

They did go, and one of the penalty sections, originally, it was designed to apply to income tax errors.

They changed it to say income tax and employment tax so that if you have one of these bad claims, they can hit you with penalties.

The penalties have increased a bit.

I think what remains to be seen is just, how is the IRS going to enforce this?

Are they back to processing the claims without any audit activity?

I don't know.

I'll tell you, I have not seen very much audit activity in the last 18 months.

I have one right now, and it went to appeals, and we won, but one out of all the claims that we've seen or I've talked to clients about is not very high, so I'm just not sure what's going to happen with the continued processing of claims, or are they going to get back to auditing them, or are they just focusing on, we found these bad actors, we're going to criminally get after them and really try and penalize them.

I'm not sure what's going to happen in the future, but I think that moratorium that the IRS put in place was very closely tied, it seemed like, to this potential legislation, and now it passed, but it passed 18 months later, so how is the IRS going to react?

I'm not sure.

It would make sense to me to lift the moratorium.

Moratorium makes no sense now that the statute is closed and the bill passed.

It'll be interesting to see what happens with that in the near future.

April Walker: It will be.

Interestingly, last time we chatted, we were talking about what do we need to do for income tax returns and literally right after we recorded this, the IRS posted some FAQs, which I still get a few questions about.

What do I need to go back and amend, or what?

I point them to these FAQs.

Be sure you're aware of these FAQs that allow you to be able to adjust your salary deduction, if I'm saying that correctly.

Chris Wittich: In the current year.

April Walker: In the current year, the year you received the claim.

Chris Wittich: Firstly, if you have to pay it back, you can recapture that deduction in the year you pay it back.

April Walker: In the year that the claim is denied, or something like that.

I forget what the language is.

Yes, be sure you're aware of that piece because definitely, again, as we've discussed, the statute for the income tax returns has passed.

That's an important thing to be aware of.

What I was thinking about was, maybe as we're recording this, maybe tomorrow, tomorrow's Friday, is the IRS going to post some information?

Chris Wittich: Lifting the moratorium?

April Walker: Maybe they were going to lift the moratorium tomorrow.

Chris Wittich: Probably.

April Walker: Who knows?

Chris Wittich: That would be fitting at 5:00 PM, Friday, news drop that they changed.

When I've been talking to clients about this, it's, be aware of some of these changes.

I think it goes hand in hand with those FAQs from March 2025.

There's a lot more options there, and you got to be very careful about whether or not you want to take those options.

There's a lot of things to consider with those FAQs, which are not binding on taxpayers, but very informative, and I think it gives some people a nice out when, otherwise, they thought they were caught between a rock and a hard place.

Having a little flexibility there is good to understand.

I think it's a good time to revisit.

If you still have pending claims or questions about ERC, and this tax bill matters, I think those FAQs definitely matter as well.

April Walker: Yeah, for sure, especially if you have 2024 income tax returns that are on extension, and the time is rapidly approaching for you to be wrapping those up.

Chris Wittich: You want to revisit your responsibility by reading the SSTSs to understand, what's my responsibility to advise a client?

We've done other podcasts on that.

I would encourage you to still do that.

I still do that with new clients.

If a new client comes to me, I ask them, did you do ERC?

Is your claim pending, or did you get it?

How did you qualify?

The day is coming where I'm going to not have to ask them about that, but I still do that.

That's still part of the onboarding process I have, and I'd encourage you to listen back to those other ones and consider the ethics of it so that you understand how these statutes matter, how do the FAQs come into play, so you can be giving clients informed advice.

April Walker: Great points.

We got a lot of resources around this topic.

Again, we're grateful, Chris, for you sharing your knowledge and experience with us today and in the past.

You're a frequent guest, so you know this question is coming, but it's still going to come.

In closing on these podcasts, we like to think about taking a journey together towards a better profession, and I like to hear about our journeys outside of tax from our guest.

Tell us about a recent journey that you've taken and maybe some highlights from that.

Chris Wittich: I've got two young children, which really puts a cramp in our traveling style, but we took a real vacation, just four days, a driving trip.

We went up north, about three hours away, just last week, and I think it was pretty successful.

The kids mostly slept at night in an unusual environment, in the room with us.

I got to sleep in bed with my three-year-old.

She enjoyed that.

It was pretty good.

I got to play around the golf, go in the pool, go in the lake, do all the Minnesota summer vacation things.

It was good.

I hope to do more of that.

April Walker: It'll get better as they get a little older, and maybe they're not screaming in the car the whole way.

Chris Wittich: Fingers crossed.

That's true.

April Walker: Soon, it's relative.

They'll want to be on a device, and you won't hear a peep from them.

The positives and negatives.

Thanks again, Chris.

Again, this is April Walker from the AICPA Tax section.

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Thank you so much, and hopefully, everybody is having a great summer.

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