Did Your Virginia Business Improperly Claim the Employee Retention Credit (ERC)?

The Internal Revenue Service (IRS) recently announced that it is targeting businesses that have improperly claimed the Employee Retention Credit (ERC). It is conducting both audits and criminal investigations focused on uncovering fraud during the 2020 and 2021 tax years.

The ERC was a refundable tax credit offered to qualifying businesses during the height of the COVID-19 pandemic. While the credit is no longer available, qualifying businesses that haven’t yet claimed the credit for the 2020 and 2021 tax years are still able to do so—and the IRS notes that “there continue to be attempts to claim the ERC during the 2023 tax filing season.”

However, as the IRS also notes, the agency has identified a significant amount of fraud under the ERC program. This includes businesses both claiming the credit when they don’t qualify and seeking larger refunds than those to which they are lawfully entitled.

The IRS is Targeting ERC Fraud in 2023

As a result, the IRS is cracking down. According to the agency’s Acting Commissioner, “[t]he IRS is actively auditing and conducting criminal investigations related to these false claims.” Audits and criminal investigations both present substantial risks, and these are risks that business owners should seek to avoid if at all possible.

Given the IRS' focus on ERC fraud in 2023, what should business owners do to protect themselves? Some of the steps business owners can take to mitigate their risk include:

• Confirm Their ERC Eligibility – All businesses that have claimed the ERC should review their books and records to confirm their eligibility. To be eligible for the credit, a business must have either: (i) closed or limited its operations due to government mandates during the pandemic; (ii) suffered a qualifying decline in gross receipts in 2020 or 2021; or (iii) qualified as a “recovery start up business” in 2021.
• Confirm the Amount of Their ERC Refund Claims – In addition to confirming their eligibility, businesses that have claimed the ERC should also ensure that they have calculated their credits correctly. Along with improperly claiming the credit, claiming too large of a refund can also trigger liability for back taxes, interest and penalties.
• Proactively Address Any ERC-Related Filing Errors – Businesses that have improperly claimed the ERC or improperly calculated their refunds should address their errors promptly. Depending on the circumstances, this may involve submitting an amended return or a voluntary disclosure.
• Engage Legal Counsel at the First Sign of IRS Scrutiny – For businesses targeted in IRS audits and criminal investigations, it is imperative to engage experienced legal counsel promptly. These inquiries present substantial risks, and mitigating these risks requires an informed and strategic defense.

Do You Have Questions or Concerns About Claiming the ERC? Contact Thorn Law Group in Virginia

If you have questions or concerns related to the Employee Retention Credit, we encourage you to contact us promptly for more information. To request a confidential consultation with tax lawyer Kevin E Thorn, Managing Partner of Thorn Law Group in Virginia, please call 703-752-3752, email ket@thornlawgroup.com or tell us how we can get in touch online today.