IRS: “Vast Majority” of Employee Retention Credit (ERC) Claims Show Signs of Fraud

The Internal Revenue Service (IRS) issued a News Release on June 20, 2024, in which it stated that the “vast majority” of Employee Retention Credit (ERC) claims show signs of fraud. The News Release quotes IRS Commissioner Danny Werfel as stating that a recent review of ERC filings “confirmed widespread concerns about a large number of improper claims” and that “[the IRS] will now use this information to deny billions of dollars in clearly improper claims.” As Boston IRS tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, the IRS’ findings will likely lead to an increase in ERC-related audits and investigations as well.

The IRS Isn’t Just Denying Improper ERC Claims

While the IRS’ News Release highlights the agency’s efforts to deny improper claims, this is not the sole focus of its ERC-related activities. The IRS is also targeting taxpayers in both tax audits and criminal tax fraud investigations.   

Beyond protecting taxpayer funds by denying fraudulent ERC claims, the IRS is also working to deter similar fraud in the future. The widespread fraud under the ERC exposed flaws in the IRS’s internal processes, and combatting ERC fraud has itself been a huge drain on government resources. As a result, beyond denying tax benefits to those who submitted improper ERC claims, the IRS is seeking to hold individuals and organizations responsible for ERC fraud as well.

This includes individuals and organizations that received improper ERC refunds and those that unsuccessfully submitted fraudulent ERC claims. The federal tax evasion statute imposes the same penalties for successful and unsuccessful attempts to defraud the IRS—which, in criminal cases, include up to a $100,000 fine ($500,000 for organizations) and five years of federal imprisonment.

The IRS’ News Release states that IRS Criminal Investigation (IRS CI) has initiated approximately 450 ERC-related criminal cases and that the IRS “has thousands of ERC claims currently under audit.” Based on what we are seeking currently, we believe that both of these numbers are likely to rise significantly through the remainder of 2024.

What Should You Do if You Have Concerns About an ERC Claim in Boston?

In light of the IRS’ ongoing efforts to combat ERC fraud, what should you do if you have concerns about an ERC claim in Boston?

While the IRS advises that “[n]o additional action [is] needed by taxpayers at this time,” this isn’t necessarily true for those who have concerns about their ERC filings. In fact, at this stage, doing nothing could increase the risks involved. Filers have options for proactively resolving ERC-related issues without triggering scrutiny from the IRS, and avoiding unnecessary consequences starts with choosing the best option in light of the circumstances at hand.

Request a Confidential Consultation with Boston IRS Tax Lawyer Kevin E. Thorn

If you need to know about your options for resolving an improper ERC claim or refund, we encourage you to contact us promptly. To request a confidential consultation with Boston IRS tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 617-692-2989 or contact us confidentially online today.