IRS ERC Tax Audits and Investigations Targeting New Jersey Businesses: What Owners and Executives Need to Know

Facing allegations of Employee Retention Credit (ERC) fraud presents substantial risks for businesses and their owners. IRS ERC tax audits and investigations can lead to civil or criminal penalties, and once the IRS opens an inquiry, submitting a voluntary disclosure or withdrawing the business’ ERC claim is no longer an option. In this article, New Jersey IRS tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains what owners and executives need to know when the IRS targets their business for suspected ERC fraud.

ERC Fraud is a Top IRS Enforcement Priority in 2024

The IRS has made clear that ERC fraud is among its top enforcement priorities in 2024. It is aggressively targeting businesses suspected of submitting fraudulent ERC claims both during and after the COVID-19 pandemic, and it is working with the U.S. Department of Justice (DOJ) to pursue criminal charges when warranted. While the IRS has acknowledged that many business owners and executives unknowingly relied on misrepresentations made by ERC scam promoters, it has also made clear that those who fail to proactively resolve their fraudulent ERC claims can expect to face steep penalties.

Even Inadvertent ERC Fraud Can Trigger Substantial Penalties

This raises an important point: Even inadvertently filing an invalid ERC claim constitutes ERC fraud. While inadvertence generally does not warrant criminal prosecution, it can still trigger civil liability. This includes liability for:

• Back taxes (including payment of invalid ERC refunds);
• Interest on past-due amounts (including refunds that need to be repaid); and,
• Civil monetary penalties (which may be up to 20 percent of the back taxes owed).

Allegations of Willful ERC Fraud Can Lead to Criminal Prosecution for Owners, Executives and Others

In cases involving willful ERC fraud, the IRS and DOJ are working together to pursue criminal charges as warranted. Allegations of willful ERC fraud can trigger a variety of criminal charges that carry both fines and prison time. Businesses, their owners and executives, and other individuals involved in the submission of fraudulent ERC claims can all face criminal prosecution in federal district court.

There Are Several Potential Defenses to Civil and Criminal ERC Fraud Allegations

While allegations of ERC fraud present several risks, there are also several potential defenses to these allegations. Determining which defenses you (or your business) can assert requires a clear understanding of all relevant facts and circumstances. IRS ERC tax audits and investigations can move quickly, so it is important for targeted businesses and individuals to move quickly as well.  This starts with engaging an experienced New Jersey IRS tax lawyer who can guide you forward.

Schedule a Call with New Jersey IRS Tax Lawyer Kevin E. Thorn

If you need to know more about defending against an IRS ERC tax audit or investigation in New Jersey, we encourage you to contact us promptly. To schedule a call with New Jersey IRS tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 201-842-7696 or contact us online today.