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Washington DC ERC Fraud

Washington DC ERC Attorneys Representing Employers in IRS Investigations and Enforcement Proceedings

The federal Employee Retention Credit (ERC) served as a financial lifeline for many businesses during the COVID-19 pandemic. However, similar to other pandemic relief programs, the ERC proved to be a prime target for fraud. As a result, the Internal Revenue Service (IRS) and its Criminal Investigation Division (IRS CI) are now scrutinizing the returns of businesses that claimed the ERC. This IRS and DOJ scrutiny has led to many businesses requiring experienced Washington DC ERC attorneys.

If the IRS or IRS CI is looking into your business’s ERC claims, you need to engage experienced defense counsel immediately. Federal tax audits and investigations present substantial risks—including the risk of criminal prosecution in some cases. Our Washington D.C. ERC attorneys have extensive experience representing businesses and their owners in high-stakes federal tax matters, and we can use this experience to protect you and your business by all means available.

What is the ERC?

The Employee Retention Credit (ERC) is a federal tax credit that was made available to qualifying employers during the COVID-19 pandemic. Available for the 2020 and 2021 tax years (beginning March 13, 2020), the ERC was established under the CARES Act, intending to help struggling businesses keep their employees on the payroll despite the pandemic’s economic impacts.

The ERC was a refundable credit that covered a certain percentage of eligible businesses’ “qualified wages.” This percentage changed between 2020 and 2021. The maximum per-employee credit amount and the number of employees for whom eligible businesses could claim the credit changed as well—and these changes (among others) created significant confusion that likely resulted in a large volume of filing errors.

To be eligible for the ERC, a business must have suffered demonstrable economic hardship caused by the COVID-19 pandemic. Under the CARES Act, there were three ways in which a business could establish its ERC eligibility:  

  • The business closed or partially suspended its operations due to a government mandate during the COVID-19 pandemic;
  • The business experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021; or,
  • The business qualified as a “recovery startup business” during the third or fourth quarter of 2021.

The IRS defined a “significant decline in gross receipts” for purposes of 2020 tax year eligibility in Notice 2021-20, and it defined a “decline in gross receipts” for purposes of 2021 tax year eligibility in Notice 2021-23. Under the CARES Act, an eligible “recovery startup business” is defined as a business that commenced operations after February 15, 2020, and had annual gross receipts of no more than $1 million.

Why Might You Need Washington DC ERC Attorneys?

So, why might you need Washington DC ERC attorneys? If your business claimed the ERC for the 2020 or 2021 tax year (or both) and you are not certain that your business was eligible, you should talk to an attorney to confirm that your business qualified. The IRS is actively examining ERC claimants’ returns for signs of ineligibility, and IRS CI is pursuing criminal investigations against businesses suspected of fraudulently claiming the ERC.

If your business claimed the ERC and is currently facing scrutiny from IRS or IRS CI, you should speak with an attorney immediately. Holding businesses and their owners accountable for ERC fraud is currently a top IRS enforcement priority, and audits and investigations are leading to substantial penalties in many cases.

Prosecution for Properly vs. Improperly Filing ERC Claims

While ERC fraud became a significant problem almost immediately after the credit’s launch, many businesses have properly claimed the employee retention credit. Unfortunately, due to the widespread fraud perpetrated under the program, the IRS is paying close attention to all business filings that include ERC claims. With the IRS using data analytics and focusing on various apparent “red flags” to identify potential targets for audits and investigation, many businesses are facing scrutiny despite properly claiming the ERC.

Even if your business properly claimed the ERC, you still need to take an IRS audit or investigation very seriously. To avoid unwarranted penalties (and the possibility of criminal prosecution), you will need to be able to prove both: (i) that your business was eligible for the ERC in the year (or years) that it claimed the credit; and (ii) that your business calculated the ERC correctly for each tax year based on that year’s rules and requirements. If you cannot substantiate your business’ ERC claims, the IRS will consider this to be evidence of non-compliance.

If your business improperly claimed the ERC for the 2020 or 2021 tax year (or both), you will need experienced Washington D.C. ERC attorneys who can deal with the IRS or IRS CI effectively on your behalf. Unintentional filing errors can lead to liability for back taxes, interest and penalties, while allegations of intentional tax fraud can lead to criminal prosecution. However, in all circumstances, there are defenses available and experienced Washington D.C. ERC attorneys will be able to identify the defenses your business can assert and work to facilitate a favorable resolution.

Businesses That May Be Subject to Investigation

Currently, all businesses that claimed the employee retention credit are subject to facing IRS scrutiny. While the IRS is likely to audit most businesses suspected of ERC fraud initially, these audits can quickly lead to criminal tax fraud investigations. Some examples of allegations that may trigger an IRS CI investigation include the following:

  • Misrepresenting the business’s eligibility for the ERC
  • Claiming the ERC despite the business’ ineligibility
  • Claiming the ERC for non-qualified wages
  • Exceeding the maximum ERC credit for individual employees
  • Falsifying payroll or other records for purposes of fraudulently claiming the ERC

Recently, the IRS issued a notice warning of “third-party ERC schemes.” Following the establishment of the ERC, many unscrupulous businesses quickly began offering services purporting to help other businesses claim the credit, even if they did not qualify. If your business improperly filed for the ERC with the help of a third party, you could be at substantial risk—even if you did not realize that doing so was unlawful.

FAQs: Defending Against Allegations of ERC Fraud

How can I determine if my business was eligible for the ERC during the 2020 or 2021 tax year?

Determining if your business was eligible for the ERC isn’t easy. Not only were the ERC’s eligibility criteria complicated, but they also changed significantly between the 2020 and 2021 tax years. If your business claimed the employee retention credit and you have questions or concerns about your business’s eligibility, you should speak with one of our Washington D.C. ERC attorneys promptly.

What should I do if the IRS is auditing my business’ employee retention credits?

If your business is facing an IRS audit focused on the employee retention credit, you should speak with an attorney as soon as possible. Currently, ERC fraud is a top IRS enforcement priority, and allegations of ERC fraud can lead to substantial penalties. Our Washington D.C. ERC attorneys can determine if your business was eligible for the ERC during the COVID-19 pandemic. If it was, we can help prove your business’s eligibility to the IRS. If it wasn’t, we can still determine what other options you have available.

What does it mean if IRS CI is looking into my business’ employee retention credits?

If IRS CI is looking into your business’ employee retention credits, this means that your business is at risk of facing criminal tax fraud charges. Your business’s owners and executives could potentially be at risk as well. In this scenario, you need to engage experienced defense counsel immediately, as IRS CI investigations can quickly lead to grand jury subpoenas and prosecution by the U.S. Department of Justice (DOJ).

What should I do if my business hired a third party to claim the ERC?

If your business hired a third party to claim the ERC, you should discuss your options with an attorney promptly. The IRS is paying particular attention to ERC claims filed with the help of these “ERC mills,” many of which exhibit the same red flags for fraud. Relying on a third party is not a justification for underpaying your business’s federal tax liability, and scrutiny from the IRS could lead to substantial civil or criminal liability.

What are my options if my business improperly claimed the ERC?

If your business improperly claimed the ERC, the options you have available depend on the specific circumstances at hand. One key factor is whether the IRS or IRS CI is already examining your business’ tax filings. If not, addressing the issue proactively will most likely be the best approach. If so, you will need to engage experienced counsel to communicate with agents or investigators on your business’s behalf.

Contact the Washington DC ERC Attorneys at Thorn Law Group

If you need to know more about how to protect your business against allegations of ERC fraud, we encourage you to get in touch. Please call Kevin E. Thorn, Managing Partner of Thorn Law Group at 202-349-4033 or request a confidential consultation online to schedule an appointment with one of our Washington DC ERC attorneys.

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