IRS To Address Employee Retention Credit Fraud Risk
With the IRS making progress in its ongoing effort related to Employee Retention Credit (ERC) claims, the agency said it has entered a new phase of increasing scrutiny on dubious submissions while renewing consumer warnings against aggressive marketing.
Speaking recently at the IRS Nationwide Tax Forum in Atlanta, IRS Commissioner Danny Werfel said the agency is intensifying compliance work and putting in place additional procedures to deal with fraud in the ERC program. Werfel said the IRS has increased audit and criminal investigation work on these claims, both on the promoters as well as those businesses filing dubious claims.
Werfel also acknowledged that most legitimate tax practitioners are trying to comply with the rules, but clients are being tempted by aggressive marketing claims and pressuring their preparers.
"Hard-working tax professionals who play by the rules see their clients go elsewhere, lured by false promises and wild exaggerations," Werfel added. "The resulting number of claims prevents the IRS from doing other priority work. But the biggest risk is being taken by the promoters pushing these schemes and businesses filing these claims. This is an area where we urge caution; those improperly claiming the credit could face follow-up action from the IRS."
The Employee Retention Credit, also sometimes called the Employee Retention Tax Credit or ERTC, is a tax credit enacted to help businesses during the pandemic that was subsequently amended three times by Congress. Many businesses legitimately apply for the credit, but aggressive marketing has overshadowed the program, the IRS said in a press release. The period of eligibility for the credit for affected businesses is very limited, covering only between March 13, 2020, and Dec. 31, 2021. Under the current law, businesses can typically continue to file claims for the credit until April 15, 2025.
Werfel said the IRS will work with the U.S. Treasury Department to explore legislative solutions to share with Congress to help address fraud and error, including potentially putting an earlier ending date for businesses to claim the credit as well as increasing IRS oversight of return preparers.
The IRS continues to provide additional legal clarity around ERC rules. On July 20, the IRS issued a legal advice memorandum applying the statutory requirements to five different scenarios. The memorandum highlighted that employers experiencing supply chain disruptions qualify for the ERC only if they had to suspend their business operations because their suppliers were unable to provide critical goods or materials due to a government order that caused the supplier to suspend its operations.
To report ERC abuse, mail or fax a completed Form 14242, Report Suspected Abusive Tax Promotions or Preparers, and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations.
For more information, see the IRS ERC webpage.