What to Do If Your ERTC Claim Is Under IRS Review for Fraud

January 30, 2024
Dayes Law Firm

Did someone claim your business could pursue a large tax credit from the ERTC? Did you file a claim under this promise, only to receive a notice from the IRS that you may have committed ERTC fraud?

The ERTC has become a prime target for scams — and now, the IRS has started cracking down on the issue. If the IRS examines your claim, you may find yourself wondering what you can do. Dayes Law Firm is here to explain more about these scams, how to avoid them, and how to address fraud.

How ERTC Scams Are Put into Motion

The Employee Retention Tax Credit – also known as the ERTC or ERC – offered a way for businesses to recoup some financial losses during and after the COVID-19 pandemic. Essentially, businesses can claim a tax credit based on a decline in gross receipts or a suspension of operations.

Unfortunately, these broad eligibility criteria mean that it’s easy to file fraudulently even by accident. In addition, the IRS initially didn’t have enough regulations in place to prevent fraud — for example, they had no way to verify a recovery startup business.

Many scam artists saw these weaknesses and used them to their advantage. They would reach out to businesses, claiming they could guarantee large credits with little evidence. Unfortunately, some businesses may have fallen for these scams and may have had fraudulent claims filed on their behalf.

Because of these scams, the IRS has started scrutinizing claims more thoroughly. IRS investigations for ERTC fraud have led to many audits — and, if the auditor finds fraud, a business can face large fines beyond returning the credit (between a 20% to 75% penalty, depending on the severity). In particularly serious cases, business owners may face criminal fraud charges.

Steps to Take If You’re Facing Employee Retention Tax Credit Fraud

If the IRS sends you an ERTC fraud alert, it’s important not to panic. Take a step back, and consider your options.

One of your first steps should be to contact an attorney. Your ERTC lawyer can negotiate with the IRS, represent you in court, and help you determine how to move forward, among other things. As such, a tax attorney can be an invaluable ally when dealing with ERTC fraud.

Gather any documentation, such as records of gross receipts or governmental orders regarding a suspension of operations. Sometimes, you didn’t commit fraud at all, and having the proper documentation helps prove it.

The IRS also plans to release a settlement program for businesses facing ERTC fraud. This program will help businesses repay their claims and protect them from penalties.

If you’re still waiting for the IRS to process your claim but are worried about fraud, consider withdrawing your claim. Take the time to discuss the claim with a tax professional and determine if it’s accurate or not.

Detecting ERTC Scams

While you can take certain steps to protect yourself from ERTC fraudulent claims, it’s far better to avoid them in the first place. Fraud prevention for ERTC claims involves paying attention to certain red flags; be wary if a supposed ERTC firm does any of the following:

  • Guarantees a large refund amount that seems too good to be true
  • States you can pursue a claim without first looking at your financial information or actual business operations
  • Doesn’t cite any specific governmental orders or is vague when you ask questions

Request Help With Your Case by Reaching Out To Dayes Law Firm

ERTC fraud can be a scary prospect. At Dayes Law Firm, we want to help you navigate your case. We’ll take the time to assess your situation, explain more about the ERTC, and help you figure out a path forward. Call 800.503.2000 to request a free consultation.