IRS Confirms “Extremely High Rate” of Improper ERC Claims and Outlines Next Steps for Fraud Enforcement

In a June 20, 2024 News Release, the Internal Revenue Service (IRS) confirmed that it has uncovered an “extremely high rate” of improper claims under the Employee Retention Credit (ERC) program. While the ERC was a pandemic-era relief program, it remained open until late last year (when the IRS imposed a moratorium on new filings due to fraud-related concerns), and the IRS now believes that the “vast majority” of claims filed under the program may be fraudulent. New Jersey IRS tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains what this means for business owners in the Garden State:

The IRS is Conducting Audits and Investigations to Uncover ERC Fraud

Although the IRS' News Release focuses on the agency’s efforts to deny improper ERC claims while processing valid refund claims as efficiently as possible, claim denial isn’t the only concern for businesses that filed improperly. The News Release also notes that the IRS has opened thousands of ERC-related audits and IRS Criminal Investigation (IRS CI) is actively pursuing hundreds of ERC fraud investigations.

Audits and investigations focused on ERC fraud present substantial risks. Minimally, targeted businesses (and individuals) can face liability for back taxes (or ERC refund reimbursement), interest, and civil monetary penalties. But, when IRS CI decides to pursue criminal charges, prosecution can lead to six-figure fines and federal prison time.

Businesses that Submitted Improper ERC Claims Should Not Take a Wait-and-See Approach

With this in mind, businesses (and individuals) that have submitted improper ERC claims should not take a wait-and-see approach. As with all potential federal tax controversies, a proactive approach focused on avoiding IRS (or IRS CI) scrutiny is best. While the IRS might fail to identify an improper refund or simply deny an improper claim, the fact that the agency is prioritizing ERC fraud means that there is a high risk of facing civil or criminal enforcement.

Options for Resolving Improper ERC Claims and Refunds with the IRS

If you shouldn’t take a wait-and-see approach, what should you do if you have concerns about ERC fraud? The short answer is, “It depends.”

In some cases, withdrawing an improper ERC claim or submitting an amended return (and payment of any amounts due) will be sufficient. But, in others, this won’t be enough—and withdrawing an improper ERC claim isn’t an option in all scenarios. As a result, for those who have concerns, making an informed decision about how best to proceed will be a key first step toward avoiding unnecessary complications with the IRS (or IRS CI).

Request an Appointment with New Jersey IRS Tax Lawyer Kevin E. Thorn

If you need to know more about how to mitigate the risks of filing an improper ERC claim, we encourage you to contact us promptly. To discuss your options with New Jersey IRS tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, in confidence, please call 201-842-7696 or request an appointment online today.