Is the IRS Still Targeting ERC Fraud in 2023?

The Employee Retention Credit (ERC) was one of multiple federal programs that served as a financial lifeline to many businesses during the COVID-19 pandemic. By providing refundable credits to eligible businesses, the ERC helped many businesses stay afloat while also continuing to support their employees.

But, like other pandemic relief programs, the ERC also proved to be a target for fraud.

As a result, the Internal Revenue Service (IRS) began scrutinizing ERC claimants’ returns—and it is continuing to do so in 2023. The IRS recently made this clear in a July 26, 2023 News Release, in which it stated: “With the Internal Revenue Service making substantial progress in the ongoing effort related to the Employee Retention Credit (ERC) claims, . . . the agency has entered a new phase of increasing scrutiny on dubious submissions.”

The IRS Is Enhancing Its Efforts to Target ERC Fraud

In other words, not only has the IRS been effective in identifying and penalizing business owners and others who improperly claimed the ERC, but it is ramping up its efforts to target ERC fraud through the rest of 2023 and beyond. Along with imposing civil penalties, the IRS is also working alongside the U.S. Department of Justice (DOJ) and other authorities to pursue criminal prosecution when warranted.

So, if your business claimed the ERC, what do you need to know? Here are some key insights for business owners who have concerns about ERC fraud:

• Not All Businesses Qualified to Claim the ERC – The ERC is subject to strict eligibility requirements. Not all businesses qualified to claim the ERC, and those that qualified in 2020 didn’t necessarily qualify in 2021.
• Many Businessowners Fell for Aggressive ERC Marketing Scams – As the IRS notes in its News Release, many companies aggressively marketed ERC services to business owners during the pandemic (and are continuing to do so, as businesses can claim the ERC retroactively through 2025). Unfortunately, this led to many business owners claiming the ERC when they weren’t eligible to do so.
• Even Unintentional ERC Fraud Can Lead to Penalties – Even business owners who inadvertently submitted fraudulent ERC claims can face IRS penalties. This includes liability for back taxes, interest and civil fines.
• Intentional ERC Fraud Can Trigger Criminal Prosecution – If an IRS audit or investigation uncovers evidence of intentional ERC fraud, this can lead to criminal prosecution. The DOJ is pursuing a variety of charges in ERC fraud cases, all of which carry the potential for substantial fines and prison time.
• A Proactive Approach is Generally Best – Given the risks involved with facing IRS scrutiny for ERC fraud, a proactive approach is generally best. Business owners (and others) who have concerns about facing ERC fraud allegations should discuss their options with an experienced lawyer promptly.

Request a Confidential Consultation with Managing Partner Kevin E. Thorn in New Jersey

Tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, has well over a decade of experience representing business owners and other clients in high-stakes federal tax controversies. If you would like to speak with Mr. Thorn about possible (or pending) allegations of ERC fraud, please call 201-842-7696 or contact us online to request a confidential consultation.