The IRS is Cracking Down on Fraudulent ERC Claims

June 30, 2023
Dayes Law Firm

In March of this year, the IRS put out a warning to companies trying to scam business owners into applying for the Employee Retention Credit (ERC/ERTC) when they aren’t eligible to do so. And now that the agency is making its way through thousands of 941-X forms commonly required to claim the ERC credit, the IRS will start cracking down on fraudulent ERC claims and likely issue a number of ERC-related audits.

ERC “Dirty Dozen”

On March 20, 2023, the IRS released a statement warning about promoter claims regarding Employee Retention Credits being a new entry in the agency’s annual “Dirty Dozen” list of tax scams.

“For the start of the annual Dirty Dozen list of tax scams, the IRS spotlighted Employee Retention Credits following blatant attempts by promoters to con ineligible people to claim the credit,” the statement read.

“These promotions can be based on inaccurate information related to eligibility for and computation of the credit.”

As part of the news release, IRS Commissioner Danny Werfel shared, “Businesses need to think twice before filing a claim for these credits. While the credit has provided a financial lifeline to millions of businesses, there are promoters misleading people and businesses into thinking they can claim these credits.”

“There are very specific guidelines around these pandemic-era credits; they are not available to just anyone,” he added. “People should remember the IRS is actively auditing and conducting criminal investigations related to these false claims.”

IRS Processing Refund Forms

Now, the agency is making its way through thousands of 941-X forms – many of which may involve the ERC – and businesses that claimed the credit that were not actually eligible to do so might be hit with an IRS ERC audit as the forms are processed.

“As of June 7, 2023, our total inventory of unprocessed Forms 941-X was approximately 642,000, some of which cannot be processed until the related 941s are processed,” the IRS reported on June 9, 2023. 

The agency noted that they have staff specifically trained in working with possible COVID-19 credits going through the returns. These employees are likely well-versed in finding any ERC discrepancies, and the agency warned in their statement in March, “The IRS is stepping up enforcement action involving these ERC claims.”

ERC Audit Assistance 

If you find yourself in the difficult position of the IRS auditing your ERC application, and you believe it to be legitimate, the team at Dayes Law Firm and our partners may be able to help. 

Our experienced tax professionals can help defend you if you find yourself audited by the IRS and you believe you claimed the ERC legitimately and with accurate documentation. We have already assisted many businesses with their ERC applications and are equipped to assist with an ERC audit defense as needed.

The IRS is, unfortunately, dealing with some companies that tricked business owners into applying for the Employee Retention Credit when they should not have done so. But if your company is hit with an IRS audit of your eligible ERC application, please contact us for a no-obligation consultation and see how the Dayes Law Firm ERC team can aid you in defending your business against an ERC audit.

Feel free to fill out the form on this page or give us a call to learn more. Our ERC tax professionals are ready and waiting to help!