IRS Renews Warning on ERTC Fraud

The IRS is Cracking Down on ERC Fraud – Employers Must Be Careful!

The Employee Retention Credit (ERC) was intended to provide financial relief to business owners during the COVID-19 epidemic. But lately, some shady characters been defrauding the system – and now, this is a problem for the government. Most notably, the IRS is fighting back against fraudsters, so legitimate businesses need to be extra careful claiming the credit. There are many illegitimate ERTC assistance companies popping up overnight, who are soliciting business owners all over the country with their ERTC claim. If you filed an ERTC claim with misleading data – it’s likely you’re going to be investigated eventually.

This article is meant for you.

The IRS Issued Stern Warnings About ERC Scams

On March 7, 2023, the IRS called out all of the suspicious companies that are filing bogus ERC claims. This echoes an earlier October 2022 warning issued by the IRS. The IRS knows many businesses are being duped into claiming credits they don’t qualify for – and could eventually be punished for this. There are many algorithms that work automatically to track fake claims.

Promoters of ERC claim scams often:

• Charge huge upfront or contingency fees for their work
• Make bold claims without legal/factual basis for making those claims
• Disclaim they aren’t offering tax advice, but are going to do your ERTC claim for you
• Don’t tell clients wage deductions must be reduced when filing for ERTC claims

While the ERC is 100% legit for qualifying employers, IRS Commissioner Doug O’Donnell says “too many promoters are aggressively misleading people and businesses into thinking they qualify when they don’t.”

The IRS is auditing and even criminally investigating false ERC claims made by the companies filing the claims. Both the company filing the claim, and the business owner, could be penalized.

Utah Company and Execs Indicted for Massive ERC Fraud

On February 1, 2023, a federal grand jury indicted a Utah accounting firm and two executives on conspiracy, wire fraud, and aiding false tax return charges.

The defendants allegedly:

• Filed over 1,000 fraudulent 941s and 7200s claiming $11M+ in fake ERC claim
• Convinced sole proprietors and 1099 workers to incorporate as S-corps purely to claim ERC credits they didn’t deserve
• Claimed maximum wages regardless of actual pay to the employees
• Listed spouses as fake “employees” in order to boost the ERC claim
• Claimed sick/family leave despite no events occurring for the ERC claim
• Forged client signatures on the ERC claim

The government is seeking that anyone involved in this scam forfeit assets bought with their ill-gotten gains. With the Biden administration prioritizing COVID PPP And EIDL fraud, it’s likely more ERC scammers to face criminal prosecution.

Protect Your Business – Seek Legal Help

The IRS is aggressively auditing and prosecuting ERC fraud cases. Employers who claimed credits but have doubts should immediately consult ERTC lawyers, before the IRS comes knocking. Also beware of shady ERC promoters, and always get a second opinion before you file that ERTC claim.