IRS Continues to Target Employee Retention Credit (ERC) Fraud in 2023

The Employee Retention Credit (ERC) was a limited-time credit offered to qualifying businesses for the 2020 and 2021 tax years. Unfortunately, similar to the Paycheck Protection Program (PPP) and other pandemic-relief programs, the ERC proved to be a target for widespread fraud. As a result, the Internal Revenue Service (IRS) has been scrutinizing the returns of businesses that claimed this refundable credit—and it is continuing to do so in 2023.

According to a March 7, 2023, News Release, “[t]he IRS is actively auditing and conducting criminal investigations related to . . . false claims” involving the Employee Retention Credit. For business owners who claimed the credit and aren’t sure whether their businesses truly qualified, the time to act is now. Voluntarily amending filing errors can significantly mitigate their financial consequences, and in cases of intentional fraud, it can help keep criminal prosecution and prison time off of the table.

IRS: Falling for an ERC Promoter Scheme is Not an Excuse

In its News Release, the IRS acknowledges that many businesses have fallen for promoter schemes involving the ERC. As the IRS explains, these schemes typically involve “large upfront fees or a fee that is contingent on the amount of the refund.” As the IRS also explains, “promoters may not inform taxpayers that wage deductions claimed on the business' federal income tax return must be reduced by the amount of the credit.”

Even for business owners who have fallen for promoter schemes, this is not an excuse for submitting fraudulent returns. The IRS makes this clear. Business owners who have claimed the ERC cannot ignore the possibility their returns are inaccurate, and they must act quickly to identify and address any errors before they trigger IRS scrutiny.

What to Do if You Have Concerns Related to the Employee Retention Credit

If your business has claimed the Employee Retention Credit, what should you be doing to mitigate your business’s risk (and your personal risk) in 2023? For business owners who have claimed the ERC, we are recommending:

• Engage counsel to review your business’s records and determine if it qualified for the ERC for the 2020 or 2021 tax year;
• Have your counsel review your business’s tax filings to determine whether it properly claimed and calculated the ERC;
• If your business improperly claimed the ERC for the 2020 or 2021 tax year, work with your counsel to determine the best path forward.

Businesses that improperly claimed the ERC potentially have a few options. While one option may be to file an amended return, this option can be risky. Another option may be to submit a voluntary disclosure, though this option carries its own unique set of risks as well. Ultimately, business owners who need to correct filing mistakes related to the ERC must make informed decisions based on the particular circumstances at hand.

Contact Tax Attorney Kevin E. Thorn in New Jersey for More Information 

If you need to know more about how to deal with a filing mistake related to the Employee Retention Credit, we encourage you to contact us promptly. Call 201-842-7696, email ket@thornlawgroup.com or contact us confidentially online to request an appointment with tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, in New Jersey.