In mid-September, the IRS announced a moratorium through at least the end of the year on processing new claims for the Employee Retention Tax Credit, also referred to as the ERTC/ERC. The agency made the extreme move because of “growing evidence of questionable claims pouring in” and concerns about improper or fraudulent applications. In fact, there are some potential serious tax crimes associated with improperly claiming the ERTC that business owners should know about.

Serious Tax Crimes Associated With Improperly Claiming the Employee Reduction Tax Credit

That September announcement noted that the IRS is now working on “hundreds of criminal cases” and that thousands of Employee Retention Tax Credit claims have already been referred for audit.

The IRS warned in a press release that business owners who improperly claim the ERTC will have to pay it back, “possibly with penalties and interest.” Having to pay back potentially thousands of dollars per employee could financially ruin a small business, and is obviously something business owners want to avoid. 

Indeed, if a business owner is audited and the amount of their Employee Retention Tax Credit funds is reduced, penalties could vary from a 20-percent “accuracy-related penalty” to a 75-percent penalty if the IRS claims civil fraud by the employer, Bloomberg Tax reported. That’s a serious legal obstacle that no one wants to contend with. 

ERTC Fraud Charges Begin

According to the United States Department of Justice’s Office of Public Affairs, in July 2023, a New Jersey tax preparer was arrested “on charges related to fraudulently seeking over $124 million from the IRS by filing over 1,000 tax returns falsely claiming COVID-19-related employment tax credits.”

In that particular case, the accused individual allegedly prepared and submitted 1,387 false forms to the IRS claiming COVID-related tax credits on behalf of himself and his clients. He allegedly submitted forms to the IRS on behalf of their businesses that greatly exaggerated the number of employees and the amount of wages paid, and allegedly submitted false forms for three of his own companies.

If convicted, the individual faces a maximum penalty of three years in prison for every count of “aiding and assisting in the preparation of a false return and 20 years in prison for mail fraud.” 

In general, in cases of improperly claiming the Employee Retention Tax Credit, federal prosecutors can pursue charges for mail fraud, wire fraud, and a number of other federal crimes. People who are convicted of criminal tax evasion can face years of federal prison time. These are extremely serious tax crimes associated with claiming the ERTC improperly and should be avoided at all costs. 

In order to avoid any possible appearance of impropriety, if you want to claim the ERTC on behalf of your business, you should consider working with trusted tax professionals to do so.

Working with Dayes Law Firm on the ERTC

At Dayes Law Firm, our ERTC team can help you with your Employee Retention Tax Credit application throughout the entire process, and make sure every bit of information the IRS could possibly want to back up your claim is present and accounted for. 

Our firm and our partner firms have assisted other businesses with filing for millions in refunds through the Employee Retention Tax Credit program so far, and we’d be happy to help you too. We have many proven success stories when it comes to the ERTC and will gladly answer any questions you may have about the tax credit or how we can assist you with it in a free, no-obligation consultation. 
Please contact us today to see how Dayes Law Firm can help you with the ERTC!