IRS Warns of Fraudulent Employee Retention Credit (ERC) Claims Under Criminal Investigation

Last week, the IRS issued a renewed warning that urges individuals to carefully review all of the Employee Retention Credit (ERC) guidelines before they claim the credit on their tax returns. Unfortunately, evidence has surfaced that ineligible people are being pushed to file for ERC, resulting in audits and fraud convictions. Third parties who charge large upfront fees or fees contingent on the tax refund amount are aggressively promoting ERC schemes through advertising; many are failing to inform taxpayers of all of the guidelines. This includes reducing wage deductions by the amount of the credit on business federal income tax returns. The criminal investigation branch of the IRS, IRS-CI, is actively investigating cases of potential ERC fraud.

IRS Warns of Fraudulent Employee Retention Credit (ERC) Claims Under Criminal Investigation

What is the Employee Retention Credit (ERC)?

According to the IRS, “the ERC is a refundable tax credit designed for businesses who continued paying employees while shut down due to the COVID-19 pandemic or who had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021. Eligible taxpayers can claim the ERC on an original or amended employment tax return for a period within those dates.” In order to be eligible to claim the ERC, employers must meet multiple qualifications, including a full or partial suspension of operations due to orders from a government authority or a significant decline in gross receipts in specific time periods within 2020 or 2021. Full information and guidelines for the ERC credit are available at

Employee Retention Credit Benefits Many Corporations

The ERC is a legitimate credit that has provided substantial benefits to millions of American businesses, so taxpayers should not be afraid to utilize the ERC if they meet the requirements. However, some promoters are misleading individuals and businesses into fraudulently claiming the ERC. According to Acting IRS Commissioner Doug O’Donnell, it’s imperative that anyone who considers claiming this credit on their tax return carefully and thoroughly reviews the guidelines, and listens to questions or advice of their trusted tax professional.

Criminal Investigations of ERC Fraud

O’Donnell stated, “The IRS is actively auditing and conducting criminal investigations related to these false claims” and urged taxpayers to “think twice before claiming” the ERC. Although the IRS has issued multiple warnings regarding the ERC since last fall, fraudulent claims continue, with some tax professionals noting that they are being pressured by businesses to incorrectly claim credits. To assist with this problem, the IRS Office of Professional Responsibility is developing additional guidance and information regarding the ERC for tax professionals.
The best way to avoid investigation or accusations of fraud is to file claims properly. If a business has made an error or deducted qualified wages before filing an employment tax return, they should file an amended tax return immediately to correct any overstated wage deductions. Additionally, businesses should be cautious of tax assistance schemes or solicitations with claims that seem too good to be true. Even when working with a tax professional, taxpayers are ultimately always the responsible party for the information that is presented on their tax returns. Failure to correctly claim the ERC could result in a requirement to repay the credit along with penalties and interest, and even a criminal conviction as the IRS-CI continues to investigate these claims.

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Silver Law PLC, is the leading tax attorney firm in Arizona, with extensive experience handling federal and state tax controversies. Whether you are facing an IRS audit, seeking innocent spouse relief, managing foreign accounts, or facing another type of tax litigation, you need representation from a trusted tax attorney in Arizona who gets results. Silver Law PLC protects the rights of their clients through aggressive, ethical representation that is based on their collective 100 years of experience in tax law. Contact us to set up your confidential consultation with our office today by calling one of our locations in Arizona, California, or Nevada.


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