IRS Highlights Continued Efforts to Target Invalid ERC Claims, Identifies New “Warning Signs” for Fraud

The Internal Revenue Service (IRS) recently issued a News Release highlighting its continued efforts to target invalid Employee Retention Credit (ERC) claims. The News Release states that the IRS’ ERC-related enforcement efforts have “topped more than $2 billion since last fall” and advises that “[b]usinesses should act soon to resolve incorrect claims and avoid future issues such as audits, repayment, penalties, and interest.” The IRS also used its News Release to identify several new “warning signs” for potentially fraudulent ERC claims, as Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains.

IRS Supplements Its List of “Warning Signs” for ERC Fraud

Back in May, the IRS issued a list of seven “warning signs” for fraudulent ERC claims. The IRS’ goal in publicizing this list was to help business owners self-assess compliance and determine whether withdrawal or other remedial measures may be necessary. With its latest News Release, the IRS has supplemented this list—providing additional insight into the types of issues that are likely to trigger civil or criminal penalties.

Based on the IRS’ latest news release, some of its primary focus areas when conducting ERC fraud audits and investigations include:

• Claiming the ERC when the business did not experience a qualifying disruption or a decline in gross receipts;
• Claiming the ERC for too many quarters;
• Claiming the ERC for an entire quarter when the business only experienced a qualifying disruption or paid qualified wages for a portion of the quarter;
• Claiming the ERC for too many employees or improperly calculating eligible employees’ qualified wages;
• Claiming the ERC for wages paid to the business’s majority owner or his or her family members;
• Claiming the ERC for a period when the business didn’t exist or didn’t pay qualified wages;
• Claiming the ERC based on a non-qualifying government order;
• Claiming the ERC based on a qualifying government order but without sufficient evidence of a business disruption or loss of revenue;
• Citing supply chain issues as the basis for claiming the ERC without also citing a qualifying government order;
• Claiming the ERC based on wages that the business already used to secure Paycheck Protection Program (PPP) loan forgiveness;
• Claiming the ERC as a “large employer” for employees who were not providing services during the COVID-19 pandemic and,
• Relying on a promoter who falsely represented the eligibility criteria for the ERC or assisted with filing a fraudulent claim.

While all of these are issues that can expose businesses to substantial risks during an audit or investigation, they are also issues that businesses can address proactively with the help of experienced tax counsel. If you have concerns about your business’ ERC filings, we encourage you to contact us promptly for more information.

Contact Virginia Tax Attorney Kevin E. Thorn Today

Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, has extensive experience representing businesses and their owners in ERC-related matters. To schedule an appointment with Mr. Thorn at your convenience, please call 703-752-3752 or tell us how we can reach you online today.