Don’t Be Duped Into Filing Unfounded ERC Claims (You Could Open Yourself Up to Criminal IRS Investigation)
As part of its annual Dirty Dozen campaign, the Internal Revenue Service (IRS) is warning businesses and individuals to steer clear of aggressive promoters offering questionable claims for the Employee Retention Credit (ERC).
These dubious claims not only put businesses at risk of penalties and interest but also potentially criminal prosecution. Let’s take a look at
The ERC: A Vital Pandemic Relief Measure
The Employee Retention Credit (ERC), also known as the Employee Retention Tax Credit (ERTC), was created to help businesses during the tough times of the COVID-19 pandemic. It was designed to support businesses that kept paying their employees even when they had to shut down or had less income because of government rules.
The ERC was meant to ease the financial pressure on businesses dealing with the challenges of the pandemic. It allowed eligible businesses to get back some of the money they spent on paying their workers, which helped them manage their finances better during uncertain economic times.
Navigating Risks: Beware of Dubious Claims
The Employee Retention Credit (ERC) faced a big problem: some people tried to take advantage of it for their own benefit. These promoters were only interested in making money, so they used tricky tactics to convince businesses to apply for the credit. They often simplified or twisted the rules to make it seem like anyone could get the money.
Because of these misleading tactics, many businesses ended up making false claims for the ERC. This not only put the ERC program at risk but also exposed businesses to serious consequences. By falling for these quick-fix solutions, businesses risked getting into trouble with government authorities and facing legal problems.
IRS Vigilance in Mitigating Risks
In response to the rise of questionable claims and deceptive practices, the IRS has taken decisive action to protect taxpayers. Implementing a moratorium on new claims filed after September 14, 2023, the IRS has fortified its enforcement capabilities and intensified scrutiny of ERC-related activities.
With a commitment to maintaining the integrity of the tax system, the IRS has conducted targeted audits and investigations, leading to the recovery of over $1 billion in ill-gotten gains. This proactive approach underscores the agency’s dedication to upholding fairness and accountability, ensuring equitable treatment for all stakeholders.
By combatting fraudulent activities and preserving the sanctity of the ERC framework, the IRS aims to foster trust and transparency within the tax ecosystem, safeguarding the interests of businesses and taxpayers.
Withdrawal Option for ERC Claims
To assist businesses that may have been misled into filing ineligible claims, the IRS introduced a withdrawal option. This allows employers to withdraw their ERC claims and avoid repayment, interest, and penalties. Claims that are withdrawn are treated as if they were never filed, and no penalties or interest are imposed.
Warning Signs of Incorrect ERC Claims
Navigating the complexities of the Employee Retention Credit (ERC) requires careful attention to avoid falling into traps set by fraudulent practices. The IRS has identified several red flags indicating potential problems with ERC claims. By recognizing and addressing these warning signs, businesses can protect themselves from inadvertently becoming involved in fraudulent schemes.
Claiming Excessive Quarters:
Be cautious of claims asserting eligibility for an unusually high number of quarters. While the ERC provides vital support during the COVID-19 pandemic, qualifying for every quarter is rare and may attract regulatory scrutiny. It’s essential to accurately assess eligibility and avoid overstating entitlement to the credit.
Misrepresentation of Government Orders:
Some promoters may spread misinformation, suggesting that any government mandate automatically qualifies a business for the ERC. This false narrative can lead to erroneous claims and potential legal consequences. Businesses should verify the accuracy of information provided by ERC promoters and exercise caution when evaluating eligibility.
Erroneous Calculations:
The complexity of ERC calculations increases the risk of errors, especially regarding wage allocation to eligible employees. Stay informed about legislative changes and ensure compliance with regulations to avoid penalties resulting from miscalculations.
Unconventional Qualification Criteria:
Claims based on unconventional grounds, such as supply chain disruptions or the entire tax period, should raise suspicion. Businesses must scrutinize their eligibility criteria carefully and refrain from asserting entitlement to the credit on questionable grounds.
Absence of Wage Documentation:
Lack of comprehensive wage records can cast doubt on the legitimacy of an ERC claim. Businesses must maintain detailed documentation to substantiate wage payments to employees and avoid regulatory scrutiny.
Deceptive Promotional Practices:
Beware of promoters offering misleading assurances of risk-free ERC claims or guaranteed eligibility. Such practices may lure businesses into precarious situations. Consult reputable tax professionals to verify the legitimacy of ERC claims and mitigate the risks associated with deceptive practices.
Seeking Reliable Guidance
Before filing an ERC claim, businesses are urged to carefully review eligibility guidelines and consult with a trusted tax professional. Relying on aggressive marketers can expose businesses to unnecessary risks and potential IRS compliance actions.
Why Choose Milikowsky Tax Law for Help
If the IRS audits even one client of a tax attorney, CPA, or dedicated ERC filing entity, they could demand all the details or threaten to audit every other filing the professional has done. At Milikowsky Tax Law, we specialize in defending businesses in challenging government tax controversies. We’re prepared to handle IRS audits and only provide the information we choose to give them. We advocate for our clients, telling their side of the story and explaining why they are right and how the IRS got it wrong.
With us, you can trust that your interests are protected, and we’ll stand by you if your ERC claim is audited, ensuring you receive fair treatment and representation.
Final Notes
In the face of aggressive marketing tactics and misleading claims, businesses must exercise caution when applying for the ERC. By understanding the eligibility requirements and seeking guidance from reputable tax professionals, businesses can avoid potential pitfalls and ensure compliance with IRS regulations.
Any Questions?
At Milikowsky Tax Law, we have over a decade of experience working with IRS and tax audits. We’re experts in defending business owners in the face of IRS or other government agency audits.
Interested in learning more? Read on to learn how to respond to an IRS audit.
