Penalties for Obstructing an IRS ERTC Claim Investigation?

December 18, 2023
Dayes Law Firm

The Employee Retention Credit (ERC) provides financial relief for employers who kept paying their workers throughout the COVID-19 pandemic, but not every employer qualifies. If you made a claim even though you’re ineligible or inflated wages paid on your claim, the Internal Revenue Service may launch an investigation to learn the truth.

Some businesses will do whatever it takes to avoid taking responsibility, but doing so can bring serious penalties. Here’s what to know about ERTC IRS obstruction penalties and how to avoid them.

The IRS May Audit Your Business

Per the United States Code, the IRS can audit any business or individual it suspects of tax fraud or evasion. However, it’s unlikely that the IRS will go straight to auditing you just because you made a mistake on your claim. They’ll likely send a letter or call you asking for clarification or evidence of your claim first.

It’s when businesses try to play hardball with the IRS that they decide to launch an audit. For instance, say the IRS asks to see your gross receipts, but you refuse. An IRS agent might think you have something to hide and choose to take a harder look at your finances.

To avoid an audit, it’s smart to simply answer all of the IRS’ questions honestly. And if you purposely submitted a claim with falsified information, withdraw it before the IRS processes it.

ERTC IRS Obstruction Penalties and Jail Time

If the IRS does launch an audit and you refuse to comply, expect big trouble. It could force you to pay back your ERTC refund, plus interest. If the IRS also finds other discrepancies, such as not paying your tax liability, you’ll have to pay what you owe for that, too.

It’s unlikely that you’ll face criminal consequences, but not impossible. If, for instance, you commit an egregious case of fraud or physically assault an IRS agent who visits your business, you could end up spending a few years behind bars.

A Note About ERTC Scams

Has an ERTC processing company called and offered to snag you a big refund with virtually no effort on your part? Be wary. ERTC scams are common because it’s easy for virtually anyone to make a claim.

The IRS catches many of these fraudulent claims, but not all. If it sends you a check you’re not eligible to cash, you must repay it if the IRS discovers the fraud.

Per IRS statements and announcements, the IRS can demand the money back even if a scammer made the claim, not you. You are personally responsible for ensuring any claim submitted to the IRS is correct and true.

To avoid penalties, stay away from companies that:

  • Say you qualify for the ERTC without looking at your taxes
  • Charge a large percentage of your refund or high upfront fees
  • Refuse to sign the ERTC return
  • Refuse to let you look over the paperwork before submission

Avoiding an IRS Audit

IRS audits can be incredibly stressful, but it’s possible to avoid them. To lower your chances of an audit:

  • Double-check calculations to ensure you’ve determined qualified wages accurately.
  • Don’t overstate the number of eligible employees you have.
  • Respond to IRS requests for more information promptly.
  • Hire a trusted tax professional to assist you.

Reach Out to Us If the IRS Is Investigating Your Claim

ERTC IRS obstruction penalties can be severe, and the IRS won’t let you off the hook just because someone else prepared your claim. If the IRS has you under investigation, contact Dayes Law Firm at (800) 503-2000 for help today.