Legal Defenses to ERC Fraud

Our IRS Tax Attorney Relies on Several Defense Strategies to Protect Businesses and Business Owners Accused of ERC Fraud

Allegations of employee retention credit (ERC) fraud can subject businesses and their owners to substantial penalties. The Internal Revenue Service (IRS) is currently prioritizing ERC fraud enforcement, and, as a result, many businesses are now finding their ERC claims under the microscope.

Potential Defenses to ERC Fraud Allegations

Regardless of whether your business properly claimed the ERC, if the IRS is examining your business’s tax returns, you need to be prepared to execute an effective defense strategy. Here are some examples of potential defenses to ERC fraud that our IRS tax attorneys may be able to assert on your business’s behalf:

Your Business Qualified for the ERC

Many businesses that are facing scrutiny for possible ERC fraud qualified for the credit. If the IRS is alleging that your business didn’t qualify and we can establish that it did, this could bring a swift end to the audit or investigation.

Your Business Correctly Calculated the ERC

The IRS is also targeting qualifying businesses that improperly calculated the ERC—or that cannot affirmatively demonstrate that they calculated the credit correctly. If your business has the necessary documentation on hand, we can use this documentation to show that your business did not engage in ERC fraud.

Lack of “Willfulness”

In order to pursue criminal tax fraud charges, federal authorities must be able to prove that you “willfully” attempted to evade or defeat your business’s tax obligations. If the IRS cannot prove willfulness, your business may be liable for back taxes and interest if it improperly claimed or calculated the ERC, but criminal prosecution is unwarranted.

Inadequate Evidence of Fraud

To pursue ERC fraud charges, federal authorities must have sufficient evidence of fraud. Even if your business claimed or calculated the ERC improperly, if the IRS can’t prove it, federal prosecutors wouldn’t be able to substantiate charges.

Inadmissible Evidence of Fraud

Even if the IRS is able to collect sufficient evidence to substantiate ERC fraud allegations, it may still be possible to avoid successful prosecution by challenging the evidence’s admissibility. There are several grounds for the inadmissibility of evidence in federal criminal tax fraud cases.

Alternatives to Defending Against ERC Fraud Allegations

While defending against ERC fraud allegations will be necessary in some cases, business owners may have other options as well. For example, depending on the circumstances at hand, it may be more prudent to:

  • Submit a Voluntary Disclosure Voluntary disclosure is an option for businesses and business owners that are not yet facing IRS scrutiny.
  • Negotiate a Settlement with the Government – If successful prosecution seems likely based on the facts at hand, it could be in your (or your business’s) best interests to negotiate a settlement with the government.

Talk to an IRS Tax Attorney at Thorn Law Group

If you need to know more about defending against ERC fraud allegations, we encourage you to contact an IRS tax attorney promptly. To arrange a confidential consultation with Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 202-349-4033 or contact us online today.

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