It’s 2023—Do I Still Need to Be Worried About ERC Fraud?

The Employee Retention Credit (ERC) program is one of several federal relief programs that saw high levels of fraud during the COVID-19 pandemic. While the ERC is still available for eligible businesses to claim retroactively, the Internal Revenue Service (IRS) and other federal authorities are actively targeting ERC fraud in 2023.

Did Your Business Properly Claim the ERC Credit?

Due to the risk of facing federal scrutiny, businesses that have claimed the ERC should reassess their eligibility and ensure that they were entitled to any credits they received. As the IRS explains in a July 26, 2023, News Release, to be eligible for the ERC a business must have:

• “Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings because of COVID-19 during 2020 or the first three quarters of 2021;
• “Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021; or,
• “Qualified as a recovery startup business for the third or fourth quarters of 2021.”

Significant decline in gross receipts, decline in gross receipts and recovery startup business are all defined terms, and before filing for the ERC, businesses were required to proactively assess their eligibility. Improperly claiming the ERC—whether intentionally or inadvertently—can lead to federal tax fraud allegations, and, as the IRS noted in its July 26 News Release, it is “continu[ing] to intensify [its] compliance work in this area.”

Avoiding Allegations of ERC Fraud

Let’s say your business claimed the ERC for a period during which it was ineligible. If you are at risk of facing allegations of ERC fraud, what should you do?

In this scenario, a proactive approach is generally best. Addressing issues before they trigger scrutiny from the IRS (or another federal agency like the U.S. Department of Justice (DOJ)) gives business owners control over the outcome, and it provides the opportunity to strategically choose between the options that are available. For example, while submitting a voluntary disclosure will make sense in some cases, there are other—and generally less risky—options for those who inadvertently submitted invalid ERC claims.

Responding to Allegations of ERC Fraud

What if you are already facing allegations of ERC fraud? Here, a proactive approach is critical as well. Allegations of ERC fraud have the potential to lead to civil or criminal charges, and keeping criminal prosecution off of the table should be one of your top priorities at this stage. Of course, if you have grounds to dispute the government allegations, you will want to avoid any unnecessary consequences. In all cases, defending yourself (and your business) effectively starts with hiring experienced legal representation.

Concerned About ERC Fraud? Contact Us for More Information

If you have concerns about facing civil or criminal penalties for ERC fraud, we encourage you to contact us promptly. To request a confidential initial consultation with tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Groups in Washington D.C., please call 202-349-4033 or contact us confidentially online today