IRS Freezes New Employee Retention Credit (ERC) Claims, Sets Its Sights on Combating Fraud

On September 14, 2023, the Internal Revenue Service (IRS) announced a moratorium on processing new Employee Retention Credit (ERC) claims. In its News Release, the IRS stated that the moratorium is due to “rising concerns about a flood of improper Employee Retention Credit claims,” which have largely been triggered by scammers aggressively promoting fraudulent ERC “programs” to unsuspecting business owners.

But, as Washington D.C. federal tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, even when business owners fall victim to scams, they can still be held liable for the taxes, interest and penalties their businesses owe. The IRS also makes this clear, noting that it may offer “relief” to qualifying businesses through settlement programs and repayment plans. However, the IRS will not hesitate to initiate tax audits and pursue investigations when warranted—and these audits and investigations can lead to criminal tax fraud charges in some cases.

Did Your Business Improperly Claim the ERC?

The Employee Retention Credit was a pandemic-era program available to qualifying businesses for the 2020 and 2021 tax years. As the IRS notes, the ERC is “an incredibly complex credit, and there are very specific eligibility requirements for claiming the ERC.” While qualifying businesses can still claim the ERC retroactively—or they could until recently—doing so has the potential to trigger intensive IRS scrutiny.

While the IRS may be focused primarily on targeting scam artists who helped businesses fraudulently claim the ERC for a fee, it is also targeting businesses (and business owners) directly. The same is true of IRS Criminal Investigation (IRS CI). As the IRS also notes in its News Release, IRS CI has already initiated hundreds of investigations targeting ERC fraud—and this number will almost certainly increase significantly as we head into 2024.

What does this mean for you? All business owners that have claimed the ERC—whether directly or through a third-party service provider—should review their records to confirm both (i) their eligibility for the ERC and (ii) the accuracy of their ERC amounts. Those who have any questions or concerns should engage experienced tax counsel promptly. As we have discussed previously, fraudulently claiming the ERC can trigger substantial penalties, and while business owners may have defenses available, they must assert these defenses effectively to avoid unnecessary consequences.

Avoiding Penalties for ERC Fraud

Generally speaking, for businesses (and business owners) that are at risk for prosecution, a proactive approach is best. Whether this involves submitting an amended return, making a voluntary disclosure or taking other action depends on the circumstances at hand. Once the IRS (or IRS CI) initiates an inquiry, the only remaining option is to assert a comprehensive defense focused on avoiding civil or criminal charges.

Discuss Your Options with Washington D.C. Federal Tax Lawyer Kevin E. Thorn

If you have questions or concerns about facing scrutiny for ERC fraud, we encourage you to contact us promptly. To discuss your options with Washington D.C. federal tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 202-349-4033 or request an appointment online today.