29 Aug 23

Employee Retention Tax Credit Fraud Lawyers | ERC Fraud Lawyers | ERTC Fraud Lawyers

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Last Updated on: 30th August 2023, 08:52 pm

What is the Employee Retention Tax Credit?

The Employee Retention Tax Credit (ERTC) is a refundable tax credit which was authorized under the  Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 to help businesses retain employees during the COVID-19 pandemic. This tax credit has become the source of a lot of scrutiny, recently, since so many fraudulent claims have been submitted for this tax credit. The IRS and many other agencies are now looking closely at ERTC fraud claims.

Key Features of the ERTC Program

This program provides a refundable tax credit of up to $5,000 per employee for eligible employers.
This tax credit applies to qualified wages paid after March 12, 2020 and before January 1, 2021.
The program helps eligible employers get immediate access to the credit by reducing employment tax deposits.

Eligibility Requirements

To be eligible for the ERTC, employers must meet certain criteria listed below:

  • Your business experienced a full or partial suspension of operations due to a COVID-19, or it experienced a significant decline in gross revenue compared to the same quarter in 2019.
  • Had 100 or fewer full-time employees on average in 2019

The credit originally was applicable to qualified wages paid between March 13, 2020 and December 31, 2020. It was later extended and expanded by the Consolidated Appropriations Act of 2021 and the American Rescue Plan Act of 2021. This enabled more business owners to qualify. By some estimates, the overall amount of tax credits could be greater than PPP loans issued in terms of $ amount of value. Unfortunately, the ERTC program has been susceptible to fraud due to the lack of verification and the fast disbursement of funds.

Some key fraud concerns that have been looked at include, but are not limited to:

Overstating Number of Employees

Employers have been caught exaggerating the number of W-2 employees to claim larger credits. The IRS found many cases where many claimed employees did not work for the company at all, or earned little to no wages.

Claiming Employees Who Did Not Exist

Many employers have been caught claiming credits for fake employees who did not actually work for the company. Completely fabricated employee names and Social Security numbers were provided on tax forms.

Lying About Eligibility

Some employers have been caught who did not meet eligibility criteria – they lied about experiencing a full or partial suspension of operations, or a significant decline in gross revenue. Some businesses even falsified documents to support their claims and got the credit.

Double Dipping

Some employers improperly claimed the same employees’ credits under both PPP and ERTC. Double dipping is prohibited, but enforcement has been lacking in this area. But now more and more task forces are being setup to investigate double dipping.

Identity Theft

Stolen identities have been used to falsely claim credits. This involves using real employee names/SSNs without their knowledge or permission

Penalties for ERTC Fraud
If you’re caught lying on applications and tax forms to claim improper ERTC credits – it can lead to both civil and criminal penalties.

Civil Penalties

Accuracy-related penalty – 20% penalty on the underpaid tax for negligence or disregard of rules
Fraud penalty – 75% penalty on the underpaid tax due to fraud
Erroneous claim penalty – 20% penalty on an erroneous refund claim that exceeds $5,000

Criminal Penalties

More serious cases of intentional fraud and abuse may face criminal prosecution:

Tax Evasion (26 U.S.C. § 7201) – Felony charge punishable by up to 5 years in prison and fines up to $250,000
Making False Claims (18 U.S.C. § 287) – Felony charge for knowingly presenting a false or fraudulent claim that could result in fines and up to 5 years in prison
Wire Fraud (18 U.S.C. § 1343) – Felony for schemes to defraud using interstate wires punishable by fines and up to 20 years in prison
Aggravated Identity Theft (18 U.S.C. § 1028A) – Using someone else’s identity during fraud carries a 2 year minimum prison sentence

Prosecutors have broad discretion in bringing criminal charges for tax fraud and abuse. Jail time is possible in severe cases.

Defenses Against ERTC Fraud Allegations

If you’re accused of lying on ERTC applications or tax forms, it’s crucial to have an experienced tax fraud defense attorney. These are federal cases, and you’ll need the help of a qualified federal defense lawyer. Some possible defenses include:

Lack of Intent

For criminal tax charges, prosecutors must prove you willfully violated the law. Evidence showing a lack of intent could help you avoid criminal tax charges.

Incorrect Advice

Acting on incorrect advice from an accountant or tax preparer could sometimes negate intent. This is something which your federal lawyer will look at.

Misunderstanding of Rules

These programs are complex. There are many questions around ERTC eligibility and qualified wages, and this can lead to honest mistakes. You may have qualified without realizing it, or perhaps weren’t qualified and didn’t know it.

Recordkeeping Errors

Innocent mistakes in recordkeeping is a big reason behind discrepancies in claimed employees and wages. Many businesses were in disarray during 2020 and 2021, and as a result recordkeeping errors creeped up.

Negligence Not Fraud Is Possible

Civil penalties require that there by willful or reckless conduct. Your federal lawyer will look to find evidence of negligence rather than fraud may reduce penalties.

To avoid civil penalties and criminal prosecution, businesses claiming ERTC should:

  • Carefully review eligibility criteria before applying for the ERTC.
  • Maintain accurate employee rosters and info about wages paid out.
  • Consult a tax professional with any questions you have.
  • Claim credits based on facts.
  • Watch for red flags like employee identity theft.

With billions paid out already, the IRS is looking at ERTC claims for fraud. The Employee Retention Tax Credit provided important – and much needed financial relief for many businesses during COVID-19. Unfortunately, the program was widely abused and many ineligible and fraudulent claims have been submitted and processed.

If you’re accused of ERTC fraud, speak to our ERTC fraud lawyers.