The ERC in 2024: What Do Business Owners Need to Know?
The Employee Retention Credit (ERC) was one of several pandemic-era relief programs that proved to be a prime target for fraud. Pandemic-related fraud has cost taxpayers tens of billions of dollars, with an estimated $8 billion in losses resulting from fraudulent ERC claims. As a result, the Internal Revenue Service (IRS) and other federal authorities are prioritizing ERC fraud enforcement heading into 2024. Here, Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains what business owners need to know.
The IRS is Targeting ERC Fraud in Audits and Criminal Investigations
The IRS is targeting ERC fraud in both civil audits and criminal investigations. When deciding which returns to scrutinize, the IRS is focusing specifically on businesses that claimed the ERC—whether during the 2020 and 2021 tax years or retroactively. This includes businesses that claimed the ERC using:
- IRS Form 941-X
- IRS Form 943-X
- IRS Form 944-X
- IRS Form CT-1X
In civil audits, businesses found to have improperly claimed the ERC or inflated the amount of their refundable credits can face liability for back taxes, interests and penalties. When targeted in criminal investigations, business owners can face fines and prison time.
Unintentionally Submitting an Invalid ERC Claim Still Counts as Fraud
Just like other tax mistakes, unintentionally submitting an invalid ERC claim still counts as fraud. As a result, all business owners who have concerns about their ERC claims should consult with a Washington D.C. tax lawyer to determine their next steps. While proof of intent is required to substantiate criminal tax fraud charges, unknowingly submitting an invalid claim is enough to trigger civil liability.
Business Owners Who Have Concerns Have Options Available
Let’s say your business improperly claimed (or improperly calculated) the ERC. What should you do next? The answer to this question depends on the circumstances at hand.
One option may be to use the IRS' ERC withdrawal program. Announced in October 2023, the ERC withdrawal program allows eligible businesses to withdraw their claims and eliminate their risk of facing ERC-related liability for back taxes, interest and penalties. Strict eligibility restrictions apply—so not all businesses can file. But, for those who can, going through the withdrawal process may be their best option.
In some cases, filing an amended return may be an option as well. However, this can be risky, as it affords no protection, and submitting an amended filing can trigger closer scrutiny from the IRS. Submitting a voluntary disclosure will be an option for some business owners as well, although, here too, there are important factors that require careful consideration before moving forward.
Discuss Your Options with Washington D.C. Tax Lawyer Kevin E. Thorn
If you need to know more about how to avoid ERC-related scrutiny from the IRS as we head into 2024, we invite you to get in touch. To schedule an appointment with Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 202-349-4033 or contact us confidentially online today.