Scarinci Hollenbeck, LLC
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201-896-4100 info@sh-law.comFirm Insights
Author: Scarinci Hollenbeck, LLC
Date: October 5, 2023
The Firm
201-896-4100 info@sh-law.comEmployee Retention Credit (ERC) scams are so prevalent that the Internal Revenue Service (IRS) recently announced an immediate moratorium through at least the end of the year on processing new claims. According to the IRS, a substantial share of new claims for the pandemic-era program are ineligible due to small businesses being scammed by aggressive promoters and marketing.
“For those people being pressured by promoters to apply for the Employee Retention Credit, I urge them to immediately pause and review their situation while we look to add new protections and safeguards to stop bad claims from ever coming in,” IRS Commissioner Danny Werfel said in a press statement. “In the meantime, businesses should seek out a trusted tax professional who actually understands the complex ERC rules, not a promoter or marketer hustling to get a hefty contingency fee. Businesses that receive ERC payments improperly face the daunting prospect of paying those back, so we urge the utmost caution. The moratorium will help protect taxpayers by adding a new safety net onto this program to focus on fraudulent claims and scammers taking advantage of honest taxpayers.”
The Employee Retention Credit is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were fully or partially suspended due to a government order or they had a significant decline in gross receipts during the eligibility periods. Eligible businesses can claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021.
The ERC is a complex claim with precise requirements that can be challenging to navigate, especially for small businesses. Many entities took advantage of this to aggressively promote the credit and make false promises of tax savings to those who are ineligible.
According to the IRS, below are several red flags that suggest you could be the target of an ERC scam:
IRS auditors are currently examining ERC claims posing the greatest risk. Additionally, the IRS Criminal Investigation division is actively working to identify fraud and promoters of fraudulent claims for potential referral for prosecution to the Justice Department.
Payouts for ERC claims will continue during the moratorium period but will proceed more slowly given the IRS’s detailed compliance reviews. According to the IRS, existing ERC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The agency may also require additional documentation from the taxpayer to ensure it is a legitimate claim.
Going forward, the IRS is working on new initiatives to help businesses who fell victim to scammers. The agency plans to enact a settlement program later this fall that will allow businesses to repay ERC claims, while avoiding penalties and future compliance action. The IRS is also finalizing the details of a special withdrawal option for those who have filed an ERC claim but the claim has not been processed. According to the IRS, the option, which will be available to taxpayers whose claim hasn’t yet been paid, will allow the taxpayers to avoid possible repayment issues and paying promoters contingency fees.
The ERC is a complex tax credit program with strict eligibility requirements. Given the significant risk of fraud, businesses should work with experienced professionals to determine the eligibility for the tax credit.
If you believe that may have already fallen victim to an ERC tax fraud scheme, it is also important to take prompt action. At Scarinci Hollenbeck, our dedicated tax attorneys can work with you to determine the best course of action to limit your losses.
If you have any questions or if you would like to discuss the matter further, please contact me, Jeff Pittard, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
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