IRS Moving “Methodically and Deliberately” to Evaluate Pending ERC Claims

In an August 8, 2024, News Release, the Internal Revenue Service (IRS) stated that it is “moving methodically and deliberately on both . . . disallowances as well as additional payments” under the Employee Retention Credit (ERC) program. This includes “intensifying audits and pursuing civil and criminal investigations of potential fraud and abuse.” The IRS has now been prioritizing ERC fraud enforcement for several years; and, as New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, ERC fraud is likely to remain an IRS enforcement priority well into the future.

The IRS’ Ongoing Efforts to Uncover and Penalize ERC Fraud

As the IRS’ recent News Release demonstrates, the IRS is now playing catchup in an effort to protect taxpayer funds while also ensuring that businesses that validly claimed the ERC receive the refunds to which they are legally entitled. The IRS imposed a moratorium on new ERC filings last September, and around the same time, it also shifted resources away from processing pending claims to pursuing audits and investigations in cases of suspected ERC fraud. The IRS is now restarting its efforts to process valid claims (and has reportedly “identified 50,000 valid ERC claims [that it] is quickly moving . . . into the pipeline for payment processing”), but it is also continuing to prioritize fraud enforcement.

This includes targeting pending invalid claims as well as pursuing recovery of invalid refunds previously issued. In both scenarios, the IRS is pursuing civil or criminal penalties as warranted. According to the IRS’ News Release, “[t]housands of audits are underway, and 460 criminal cases have been initiated.”

Implications for New Jersey Business Owners

What does this mean for business owners in New Jersey who claimed the ERC—either during or after the COVID-19 pandemic? The short answer is, “It depends.” In varying circumstances, business owners’ options may include:

• Do Nothing – If your business filed a valid ERC claim and has received a refund or is waiting to receive one, then no action may be necessary.
• File an Appeal – If the IRS has disallowed your business’s ERC claim and you disagree with its decision, challenging the IRS’ decision will involve filing an appeal.
• File an Amendment, Withdrawal or Voluntary Disclosure – If your business’s ERC claim is still pending and you have concerns about its validity, it will likely be in your best interests to seek a proactive resolution by filing an amendment, withdrawal or voluntary disclosure.
• Prepare to Defend Against Allegations of ERC Fraud – If it is too late to seek a proactive resolution, then it may be time to begin preparing a defense to allegations of ERC fraud.

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

If you need legal advice about your business’ ERC claim, we encourage you to contact us promptly for more information. To request an appointment with New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 201-842-7696 or contact us confidentially online today.