Important Considerations for Virginia Businesses Targeted in IRS ERC Tax Audits and Investigations

With the Internal Revenue Service (IRS) continuing to aggressively target Employee Retention Credit (ERC) fraud in 2024, it is critical that Virginia business owners who claimed the credit have a clear understanding of the risks involved. As Virginia IRS tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group explains, allegations of ERC fraud can expose business owners to substantial penalties—including criminal penalties in some cases:

The Risks Facing Virginia Business Owners Who Claimed the ERC

The risks involved in facing an IRS ERC tax audit or investigation depend on whether the inquiry is civil or criminal in nature. This hinges on the IRS’s assessment of willfulness. Willfully submitting a fraudulent ERC claim can expose businesses (and their owners and executives) to criminal charges, while non-willful violations carry civil penalties. With this in mind, the potential penalties resulting from ERC-related audits and investigations include:

• Civil Penalties for Non-Willful ERC Fraud – Civil penalties can include liability for back taxes (including repayment of ERC refunds), interest, and the IRS’s accuracy-related penalty—which is typically calculated as 20 percent of the back taxes owed.
• Criminal Penalties for Willful ERC Fraud – In criminal cases, businesses can face six-figure fines, while business owners and executives can face both six-figure fines and federal prison time.

Avoiding an IRS ERC Tax Audit or Investigation

For business owners in Virginia who are not yet facing an IRS ERC tax audit or investigation, promptly assessing their business’s compliance with ERC eligibility criteria is critical for determining their next steps. If the business’s ERC claim is fully compliant, then no further action may be required. However, if the business’s ERC claim is not compliant, then one of the following may be necessary:

• Voluntary Disclosure – While the IRS’s ERC Voluntary Disclosure Program has closed, eligible business owners can still submit disclosures under the IRS’s standard Voluntary Disclosure Practice.
• ERC Withdrawal – Filing for ERC withdrawal may be an option for business owners who have not yet received their refunds from the IRS.
• Filing an Amended Return (and Paying All Taxes, Interest and Penalties Owed) – If neither voluntary disclosure nor filing for withdrawal is an option, then filing an amended return may be necessary to mitigate the risk of facing IRS scrutiny.
• Seeking an IRS Settlement or Offer in Compromise – For businesses that cannot afford to pay what they owe, it may be possible to negotiate a settlement with the IRS or submit an offer in compromise.

Responding to an IRS ERC Tax Audit or Investigation

Let’s say it’s too late to avoid an IRS ERC tax audit or investigation. What should you do if you are already facing scrutiny related to your business’s ERC claim? In this scenario, a prompt response is required. To determine how best to respond to the IRS’s inquiry, you should consult with an experienced Virginia IRS tax attorney as soon as possible.

Discuss Your Concerns with Virginia IRS Tax Attorney Kevin E. Thorn

Virginia IRS tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, relies on extensive experience to help businesses and their owners avoid unnecessary liability for ERC-related violations. To discuss your concerns with Mr. Thorn in confidence, give us a call at 703-752-3752 or tell us how we can contact you online today.