Many of our clients are currently in the process of applying for refunds associated with 2020 Employee Retention Credits (ERC). Through our detailed analysis of the legislation it has come to our attention that timing of the wage deduction disallowance associated with ERC could lead to undesirable and possibly unintended consequences for taxpayers seeking relief during this challenging time. Specifically, many taxpayers who were unable to claim 2020 credits on their original Form 941 filings may be required to pay additional income tax despite not yet having received the refunds associated with these credits.

DHG recognizes that there are taxpayers who are unable to make this payment or are unable to accurately estimate the wage disallowance by the normal income tax payment due date, as a result they may find themselves subjected to late payment penalty notices.

DHG’s ERC knowledge leaders and professional services group have submitted a letter to the Commissioner of the Internal Revenue Service (IRS) and the Acting Assistant Secretary for Tax Policy at the U.S. Department of Treasury to state our concerns over the cash-flow impact resulting from this rule in conjunction with the timing of recent legislative changes expanding eligibility for the ERC.

In this letter, DHG’s team asks that the failure to pay penalty be disregarded for a period of one year from the otherwise applicable statutory due date,

• to the extent of any income tax liability attributable to an ERC related wage deduction disallowance,
• which results from the claiming of employee retention credits determined with respect to calendar quarters ending in 2020.

This relief, if granted, will allow our clients additional time to complete their 2020 ERC assessments, file claims and receive refunds before they are required to pay the associated income tax increase.

DHG will be closely monitoring any updates from the IRS or the Department of Treasury and will continue to share our point of view to seek the best outcomes for our clients.