IRS Final Regulations Allow Assessment of Erroneous Refunds of COVID-19-Related Tax Credits

The IRS released final regulations that allow assessment of refunds paid erroneously based on available tax credits under the Families First Coronavirus Response Act, the CARES Act and the American Rescue Plan Act. Erroneous refunds of COVID-19-related credits will be treated as underpayments of tax under IRC Sections 3111(a) or (b). Both assessment and administrative collection procedures may apply. The regulations also clarify that if third-party payers claimed tax credits on behalf of common law employer clients, employers against which erroneous refunds of credits can be assessed include anyone treated as an employer under IRC Sections 3401(d), 3405 and 3511. The common law employer client of the third-party payor remains liable for the erroneous refunds of these tax credits. Employers who claimed these tax credits should be made aware that the IRS has also indicated that it is increasing scrutiny and enforcement efforts when it comes to erroneous employee retention tax credits. For more information on the employee retention tax credit, visit Tax Facts Online. : Q . Note: Q is updated.