The bill also would have fixed a technical problem with respect to the third and fourth quarter 2021 ERC claims, created when the American Rescue Plan Act extended the SOL to audit these quarters to five years (Section 3134(l)), but did not extend the taxpayer’s time to amend the associated income tax returns, which is three years. The problem arises because taxpayers claiming the ERC must reduce their wage deduction on their income tax returns by the amount of the ERC refund, even before the taxpayer receives any ERC refund. This results in a whipsaw effect.
To insulate themselves, taxpayers should strongly consider filing “protective claims” prior to the expiration of the SOL on the income tax returns relating to ERC wages. The SOL is generally three years but depends on when the taxpayer filed and when taxes were paid (see, Section 6511(a), (b)). Therefore this SOL could end sometime between April 2024 and October 2025. Because this determination is very fact specific, it is important to consult your tax attorney or accountant to make sure you meet this deadline and properly complete the “protective claim.”
For taxpayers who have received a Denial Letter (or may receive one) or simply never heard from the IRS about their ERC claim, or for taxpayers still considering filing for the ERC prior to April 15, 2025, it is important to reevaluate whether your business qualifies for the ERC following the Supreme Court’s Summer 2024 decisions ending Chevron deference to federal agency action: Loper Bright Enterprises v. Raimondo; Relentless, Inc. v Dept. of Commerce; and Corner Post Inc. v. Board of Governors of the Federal Reserve System (collectively, the “Post-Chevron Cases
We previously analyzed Chevron and the Post-Chevron Cases in a prior alert. Chevron imbued administrative agencies, such as the Department of Treasury (of which the IRS is a part), with considerable deference when interpreting and enforcing laws promulgated by Congress, such as the ERC (Section 3134). The Post-Chevron Cases ended this deference and consequently, taxpayers should carefully reconsider the IRS’s prior interpretations of the ERC, especially given the ERC’s genesis during the turbulent COVID-19 pandemic era.
