What Do Business Owners Need to Know About ERC Fraud in 2023?

The Employee Retention Credit (ERC) is a refundable tax credit available to eligible businesses for the 2020 and 2021 tax years. While the ERC was intended as a COVID-19 pandemic relief measure, businesses can still claim the credit retroactively in 2023.

Businesses can still face allegations of ERC fraud in 2023 as well.

Similar to other pandemic relief measures, the ERC proved to be a prime target for fraud. Not only did some business owners (and non-business owners) intentionally claim fraudulent refunds, but, as the IRS notes, “aggressive marketing has overshadowed the program.” As a result, in many cases, business owners unknowingly claimed credits for which their companies were not eligible. However, as the IRS makes clear, this is not a justification for engaging in tax fraud.

IRS Enters “New Phase” of Combating ERC Fraud in July 2023

In the same News Release discussing the impacts of aggressive marketing on the ERC program, the IRS notes that it is entering a “new phase of Employee Retention Credit work,” with a specific focus on “deal[ing] with the growing fraud risk.” While the IRS’s News Release highlights ways that business owners can avoid falling for ERC marketing scams going forward, it also makes clear that the IRS is targeting—and will continue to target—businesses that improperly claim the Employee Retention Credit.

“[T]he IRS continues to intensify compliance activities involving ERC claims,” the July 26, 2023 News Release states. This comes on the heels of a March 7, 2023, News Release in which the IRS stated that it was “actively auditing and conducting criminal investigations related to these false claims”—referring to claims under the ERC program. Since the IRS has no way of knowing whether a business filed for the ERC independently or relied on a third party (short of conducting an audit or investigation), all businesses that claimed the ERC face similar risks for IRS scrutiny.

What Are the Options for Avoiding an ERC Fraud Audit or Investigation?

While business owners who did not intend to engage in ERC fraud may be able to avoid criminal prosecution—if they are able to defend themselves successfully—they still face the risk of civil enforcement action. Evidence of intent is not required for the IRS to pursue liability for back taxes, interest and penalties. Thus, all business owners who have concerns about facing ERC fraud allegations should address their circumstances proactively, and this starts with learning about the options they have available.

What are these options? The answer to this question depends on the circumstances at hand. For example, while submitting a voluntary disclosure will make sense in some circumstances, this approach can be risky—and it can even trigger IRS scrutiny in some cases.

Concerned About ERC Fraud? Discuss Your Options with Managing Partner Kevin E. Thorn

Do you have concerns about facing allegations of ERC fraud from the IRS? If so, we encourage you to contact us promptly for more information. To request a confidential consultation with tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group in Boston, please call 617-692-2989 or contact us online today.