Accounting
Tax Strategy: Employee Retention Credit update
The Internal Revenue Service has announced that, following the moratorium on processing Employee Retention Credit claims after Sept. 14, 2023, it is starting to process claims received prior to that date. The IRS further reported that it had an inventory of 1.4 million ERC claims totaling more than $86 billion and was receiving new claims at a rate of 17,000 per week. The agency is continuing the moratorium on processing new claims out of fear that ending it would result in a flood of additional claims.
Of those ERC claims it has processed, the IRS reports that it approved 28,000 claims worth $2.2 billion and disallowed 14,000 claims worth more than $1 billion. This indicates a denial rate of approximately one out of every three claims. Since the moratorium was initiated, the agency has been digitizing the information in the claims and analyzing the data. This has helped identify the common issues with problem claims. The IRS has issued guidance identifying seven warning signs that an ERC claim may be incorrect.
The claims analysis undertaken by the IRS has determined that 10 to 20% of the claims are high-risk and will be issued denial letters in the weeks ahead, some of which have already been issued. The IRS determined that 60 to 70% of the claims showed an unacceptable level of risk and will be subject to additional analysis to further evaluate the claims. Only 10 to 20% of the claims were evaluated as being low-risk, and the IRS indicated that it would begin processing those returns, with payments issued this summer, with the oldest claims processed first.
If the processing of the claims indicates a calculation error, the IRS will adjust the payment to compensate for the calculation error. Initially, all the claims being processed will be from prior to Sept. 14, 2023.
Voluntary disclosure program
The IRS’s voluntary disclosure program for ERC claims ended in May, 2024. It resulted in 2,600 applications involving $1.09 billion. The agency indicated that it might reopen the program at a reduced rate for those taxpayers with previously processed claims who wish to avoid future compliance action by the IRS.
IRS withdrawal program
The continuing IRS withdrawal program initially involved letters to taxpayers for the 2020 tax year. Withdrawal results in the agency treating the ERC claim as though it had never been filed, with no interest or penalties.
The IRS reported in June 2024, that the withdrawal program had resulted in 4,800 entities withdrawing $531 million in ERC claims. For the initial round of letters, the agency determined that more than 12,000 entities filed over 22,000 claims that were improper and resulted in $572 million in assessments. The letters to address the 2021 tax year will generally involve larger claims.
Enforcement activity
The IRS states that they have thousands of ERC claims currently under audit. As of May 31, 2024, the agency has initiated 450 criminal cases, with potentially fraudulent claims worth nearly $7 billion; 36 investigations had resulted in federal charges; 16 investigations had resulted in convictions; and seven sentencings had resulted in average sentences of 25 months. The service is also conducting investigations of promoters and return preparers for improper activities.
Summary
The processing of ERC claims, while underway at least in part, promises to be a long process given the backlog the IRS is facing. Efforts in Congress to extend the statute of limitations for ERC claims and to shorten the filing deadline for ERC claims has so far been unsuccessful.
The current filing deadline is April 15, 2025, for the 2021 tax year. The IRS withdrawal program remains available to taxpayers facing denial of their claims. The IRS has also indicated that it might reopen the voluntary disclosure program. Taxpayers who now have doubts about the validity of their ERC claims could also consider filing an amended tax return.
Taxpayers who continue to feel that they have legitimate ERC claims may still have to wait a considerable time until the IRS processes those claims and completes its analysis of those claims where it has identified some risks. The agency has stated that taxpayers need to take no action at this time, and also that no information on the status of processing particular ERC claims will be available on the IRS hotline.
For taxpayers who are concerned about waiting until the IRS is able to process their claim, there may be an ability to somewhat advance the process by filing a claim for refund. Given the high percentage of ERC claims where the IRS has at least tentatively identified some possible problems, taxpayers should be working with trusted tax professionals to make sure that they have the facts and documents assembled to support their position should a denial letter ultimately be issued and the taxpayer wants to appeal or file a refund claim.
The IRS has promulgated an ERC Eligibility Checklist and a list of frequently asked questions on the ERC to further help taxpayers in assessing the merits of their ERC claims.
Matthias Balk/Photographer: Matthias Balk/pict
Saudi Arabia’s wealth fund has temporarily banned Big Four firm PwC from advisory and consulting services contracts, people familiar with matter said, halting the firm’s progress in one of the world’s most lucrative markets.
Executives at the $925 billion Public Investment Fund and its more than 100 subsidiaries have been told to stop handing out consulting projects to PwC until February 2026, the people said, declining to be identified as the information is confidential. The firm’s auditing projects will not be affected, they said.
The PIF did not explain reasons behind the move in messages sent to its portfolio companies. Representatives for the fund declined to comment, while a spokesperson for PwC didn’t respond to requests for comment.
The PIF’s decision comes two years after PwC received a license to open its regional headquarters in the kingdom, where it employs more than 2,000 people across Riyadh, Jeddah, AlUla, Al Khobar and Dhahran. In the Middle East, the company operates from more than 20 locations.
PwC’s non-audit services span areas like mergers & acquisitions and tax advisory, alongside its strategy and consulting work. For its most recent fiscal year, the Middle East was the
The Middle East generated £1.97 billion ($2.5 billion) in revenue for the company in the twelve months to June 30, up 26% from the same period a year earlier. The firm said its accounting models assumed revenue growth would remain robust in the region in 2025 and 2026, though it conceded that it might not reach last year’s levels.
The region also ranks among the strongest globally based on revenue and profitability for the likes of McKinsey & Co. and Boston Consulting Group Inc. Business from the Saudi wealth fund has been a key driver of that growth.
The PIF is anchoring the kingdom’s economic transformation plan, Vision 2030, and has set up about 100 portfolio companies. That includes Neom, a $1.5 trillion new city on the west coast, as well as other multibillion-dollar projects aimed at building out historic areas like Diriyah and AlUla into tourist destinations.
That’s
Farmers and fishers who chose to forgo making estimated tax payments by January must generally file their 2024 federal income tax return and pay all taxes by March 3.
The usual March 1 deadline, which is a Saturday this year, is pushed back two days.
The March 3 deadline applies to anyone who qualifies as a farmer or fisher and did not make a 2024 estimated tax payment by last Jan. 15. Those who made a qualifying payment by that date can wait until the regular April 15, 2025, deadline to file and pay and still avoid estimated tax penalties.
A farmer or fisher is anyone who received at least two-thirds of their gross income from farming or fishing during either 2023 or 2024.
Taxpayers, including farmers and fishers, in disaster areas have more time to file and pay with an automatic extension. Taxpayers in the entire states of
KPMG today launched KPMG Law US, making it the first law firm owned by a Big Four firm in the U.S.
KPMG Law US will collaborate with KPMG’s global network of law firms, operating in more than 80 jurisdictions, to provide clients with legal managed services, legal operations consulting and legal technology innovation. It will provide legal services powered by artificial intelligence and KPMG Digital Gateway, a cloud-based and generative AI-enabled platform that serves as a “control tower” for a company’s tax and legal data and provides advanced analytics and reporting capabilities.
The law firm will operate as an independently managed subsidiary of KPMG LLP and maintain strategic alignment with the KPMG LLP Tax practice. It will build on the established presence of KPMG in Arizona, which currently serves over 100 clients.
“KPMG Law US is uniquely positioned to transform the delivery of legal services,” Rema Serafi, Vice Chair of tax at KPMG, said in a
KPMG
“We have been studying Arizona’s structure for years, and we’re excited by the possibility that it presents to us,” KPMG Tax principal Tom Greenaway, the designated principal on the application, said during a Jan. 14 court hearing. “We think the time is right now for us, given the advances that we have made in technology and the maturity of this market. We really think that we can bring innovation and a complete set of integrated legal solutions to our clients and to other clients here in Arizona.”
Aprio, a private equity-backed Top 25 Firm based in Atlanta, is taking advantage of the same law by joining with Radix Law in Arizona to form
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