Did You Receive an Employee Retention Credit Recapture Letter? Here’s How Too Handle it:

What to Do If You Receive an Employee Retention Credit Recapture Letter

In August 2024, the IRS announced plans to issue up to 30,000 Employee Retention Credit (ERC) recapture letters (Letter 6577-C) throughout the fall. These letters, representing over $1 billion in claims primarily from tax year 2021, inform businesses that their previously claimed ERC is being reversed or recaptured. This follows an earlier round where over 12,000 entities received similar notices for tax year 2020, resulting in $572 million in assessments.

Understanding the ERC Recapture Letter

The ERC was designed to support businesses during the COVID-19 pandemic by providing credits for retaining employees. However, the IRS has identified instances where these credits were claimed in error or without proper qualification, leading to the issuance of recapture letters.

Steps to Take Upon Receiving a Recapture Letter

1. Review the Letter Carefully: Understand the IRS's reasoning for the recapture and the specific amounts involved.

2. Consult a Tax Professional: Seek guidance to assess the validity of the IRS's claims and to explore your options for response.

3. Gather Documentation: Compile all relevant records that support your original ERC claim, including payroll records and financial statements.

4. Respond Promptly: Adhere to any deadlines specified in the letter to avoid additional penalties or interest.

5. Consider Payment Options: If repayment is necessary, discuss payment plans or other arrangements with the IRS.

Preventive Measures for the Future

• Stay Informed: Keep abreast of IRS guidelines and updates regarding tax credits and other relief measures.

• Maintain Accurate Records: Ensure thorough documentation of all financial transactions and employee records.

• Seek Professional Advice: Before claiming credits or deductions, consult with a tax professional to ensure eligibility and compliance.

Receiving an ERC recapture letter can be daunting, but with careful attention and professional guidance, you can navigate the process effectively. For more detailed information, visit the Taxpayer Advocate Service's guidance on this issue.

Reference:

Taxpayer Advocate Service. (2024, December). What to do if you receive an Employee Retention Credit recapture letter. Internal Revenue Service. https://www.taxpayeradvocate.irs.gov/news/tax-tips/what-to-do-if-you- receive-an-employee-retention-credit-recapture-letter/2024/12/