As the Internal Revenue Service (IRS) makes significant headway in processing Employee Retention Credit (ERC) claims, Commissioner Danny Werfel has issued a stern warning against fraudulent submissions while shedding light on the escalating issue of aggressive marketing.
Speaking at a special roundtable session of tax professionals in Atlanta, Werfel disclosed that the IRS has shifted its focus from clearing the backlog of legitimate ERC claims to intensifying compliance efforts and implementing additional measures to combat fraud within the program.
IRS Commissioner Warns Against Fraud and Aggressive Marketing in ERC Claims
Werfel highlighted the growing concern that as the pandemic recedes, the percentage of valid ERC claims might be declining while an increasing number of questionable claims surface due to misleading marketing strategies employed by promoters.
The ERC, initially enacted to support businesses during the pandemic, underwent three congressional amendments.
The eligibility period for the ERC for affected businesses is limited to the period between March 13, 2020, and December 31, 2021.
Businesses are typically allowed to file claims for the ERC until April 15, 2025, raising concerns about potential future abuse.
Werfel emphasized the staggering amount of misleading marketing surrounding the credit, leading to several challenges for tax professionals, the IRS, and businesses alike.
The situation is causing risks for businesses improperly claiming the credit and disrupting the intended purpose of the ERC.
Werfel urged Congress to intervene and explore legislative solutions, such as establishing an earlier ending date for businesses to claim the credit and enhancing IRS oversight of return preparers.
To ensure transparency, the IRS continues to encourage businesses and tax-exempt organizations considering applying for the credit to carefully review the official requirements before proceeding.
Concurrently, the IRS is escalating compliance activities pertaining to ERC claims.
Although the IRS has made substantial progress in processing the 2.5 million ERC claims received since the program’s enactment, concerns have risen about potential scams and fraud attempts.
False and misleading public advertisements are increasingly exploiting taxpayers, necessitating the IRS’s dedication to training auditors for examining high-risk ERC claims and engaging its Criminal Investigation division to identify fraudulent activities and promoters.
Werfel reinforced that anyone improperly claiming the ERC will be required to repay it, possibly with penalties and interest, which could adversely affect businesses and tax-exempt groups financially.
The IRS emphasizes the importance of avoiding scams and adhering to the proper guidelines for claiming the ERC.
The ERC is a refundable tax credit designed to support businesses that continued paying employees during the COVID-19 pandemic, especially if their operations were fully or partially suspended due to government orders or faced significant declines in gross receipts during the eligibility periods.
However, it is not available to individuals.
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Beware of Scams and Follow Official Guidelines
To aid tax professionals and others, the IRS is continuously providing legal clarity regarding ERC rules.
A recent legal advice memorandum, released on July 20, delved into five different scenarios, emphasizing that employers experiencing supply chain disruptions qualify for the ERC only if their business operations were suspended due to a government order affecting their suppliers’ ability to provide essential goods or materials.
The IRS also warns taxpayers to be wary of warning signs involving the ERC, such as unsolicited calls or advertisements claiming an “easy application process,” large upfront fees, and preparers who refuse to sign ERC returns.
Additionally, the agency cautions against promoters leaving out key details about eligibility requirements or misleading individuals about their eligibility for the credit.
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