What Are the Penalties for ERTC Fraud?

December 19, 2023
Dayes Law Firm

While the Employee Retention Tax Credit (ERTC) offers business owners like you the opportunity to recover from the financial impact of COVID-19, it can come with financial complications, too. The ERTC filing process can be difficult to navigate, and without reliable guidance, you can unknowingly commit ERTC fraud. Our ERTC recovery team at Dayes Law Firm can explain the penalties of ERTC fraud and the best practices to avoid it. 

The IRS Is Increasing Audits and Claim Investigations

The IRS is currently not accepting new ERTC claims. After placing a moratorium on ERTC claims on September 14th, 2023, the IRS is continuing to review claims that businesses have already submitted. The moratorium will continue through 2023 and possibly later.

An increase in ERTC fraud caused the IRS to begin putting claims through a thorough compliance review process. This evaluates the validity of ERTC claims, including business eligibility and wage eligibility. 

Potential Penalties of ERTC Fraud

When you aren’t careful to file eligible and accurate ERTC claims, you may face various penalties. 

IRS Audits

Any IRS audit can be a headache. If you don’t have your records organized or fail to provide proof of your ERTC eligibility, this can be a drawn-out process that leads to lost funds. If the IRS audits your claim, contact a tax attorney for guidance. 

Returning the Refund

If you commit ERTC fraud and have already collected your ERTC refund, you will have to pay it back in full. You may also have to pay interest, depending on the amount and when you collected the refund. 

Penalties and Criminal Charges

In some cases, you may be eligible for the ERTC but claimed ineligible wages, leading to a reduced refund. If you face an audit and the IRS reduces your refund, you could face a 20% accuracy-related penalty. If you commit civil fraud, you are subject to a 75% penalty. In egregious cases, you may face criminal charges. 

Tips to Avoid Committing ERTC Fraud 

The ERTC can be an exciting business opportunity, but without claiming the credit correctly, you can face a significant financial and legal burden. You can file your ERTC claim responsibly by following these steps. 

Avoid Scams

The introduction of the ERTC came with scammers who wanted to take advantage of small businesses. They encourage businesses to claim the credit while offering to calculate the ERTC for a portion of your refund. 

Some intentionally scam businesses, while others simply lack the necessary knowledge to comply with IRS guidelines. Do your research before consulting with any third parties about your ERTC eligibility. 

Confirm Eligibility 

To be eligible for the ERTC, you must pass either the gross receipts test or the suspension of operations test. 

The gross receipts test requires a significant decline in gross receipts during the eligibility periods. The IRS defines this as:

  • A 50% loss when comparing 2020 quarters to 2019
  • A 20% loss when comparing 2021 quarters to 2019

The suspension of operations test requires you to have seen a partial or full suspension of operations due to a government order related to COVID-19.

Contact Tax Professionals

Since 2020, the IRS has made various adjustments to the ERTC. Make sure you’re up to date on all requirements with the help of a tax attorney. A reliable tax professional will verify your ERC eligibility and help you properly file your claim.

Prevent ERTC Fraud With Dayes Law Firm 

At Dayes Law Firm, we have extensive experience with the ERTC. We’ll verify your claim is eligible and walk you through every step of the process. We’ve assisted hundreds of businesses in filing the ERTC correctly, and you could be next. Call 800-503-2000 for a free consultation