Small Business Taxes & Management

Special Report

IRS Publishes Warning Signs of Fraudulent ERC Claims and Correction Options


Small Business Taxes & ManagementTM--Copyright 2024, A/N Group, Inc.




With a key March deadline quickly approaching, the IRS highlighted special warning signs that an Employee Retention Credit (ERC) claim may be questionable to help small businesses that may need to resolve incorrect claims.

The agency is alerting businesses about seven suspicious warning signs that could signal future IRS problems involving ERC claims. The indicators, built on feedback from the tax professional community and IRS compliance personnel, center on misinformation some unscrupulous ERC promoters used. Many of these groups urged taxpayers to ignore advice from trusted tax professionals and claim the pandemic-era credit even though they may not qualify.

The alert comes as a March 22, 2024, deadline approaches for the ERC Voluntary Disclosure Program for anyone that filed a claim in error and received a payment; the disclosure program allows businesses to repay just 80% of the claim. Taxpayers who filed a claim previously that hasn't been processed should also review the guidelines and quickly pursue the claim withdrawal process if they now see their claim is ineligible.

The IRS took steps on the ERC program after the well-intentioned pandemic-era program came under aggressive, misleading marketing that oversimplified or misrepresented eligibility rules. Promoters pushed more applicants into the program, frequently by taking a percentage of the payout. The IRS wants businesses to know about these warning signs, revisit their claim if there are questions and act quickly before the special disclosure and withdrawal programs end. Resolving an incorrect claim through the IRS's special programs will avoid penalties and interest.

The ERC, sometimes called the Employee Retention Tax Credit or ERTC, is complex, and the IRS urged claimants to talk to a reputable tax professional for help with an ERC claim. Taxpayers should avoid working with anyone who doesn't ask for details or business records, such as payroll records.


7 Suspicious Signs an ERC Claim Could be Incorrect

Here are some of the common red flags being seen on ERC claims that the IRS is focusing on:

  1. Government orders must have been in effect and the employer's operations must have been fully or partially suspended by the government order during the period for which they're claiming the credit.
  2. The government order must be due to the COVID-19 pandemic.
  3. The order must be a government order, not guidance, a recommendation or a statement.

The frequently asked questions about ERC--Qualifying Government Orders section of has helpful examples. Employers should make sure they have documentation of the government order related to COVID-19 and how and when it suspended their operations. Employers should avoid a promoter that supplies a generic narrative about a government order.


Resolving Incorrect ERC Claims

Businesses that are not eligible for ERC but have received it--as a check that's been cashed or deposited, or in the form of a credit applied to a tax period--may be able to participate in the IRS’s ERC Voluntary Disclosure Program. The special program runs through March 22, 2024, and allows eligible participants to repay their incorrect ERC, minus 20%.

If a taxpayer’s ERC is incorrect and is paid after Dec. 21, 2023, they aren’t eligible for the ERC VDP. They should not cash or deposit their check. They can withdraw the claim, return the check and avoid penalties and interest.

The withdrawal option lets certain employers withdraw their ERC submission and avoid future repayment, interest and penalties. Businesses can use this option if they haven't received the payment, or they've received a check but haven't deposited or cashed it. If a taxpayer's withdrawal request is accepted, the IRS will treat the claim as though it was never filed.


Resources and Tools to Learn More About ERC Eligibility

The IRS's frequently asked questions on ERC include links to additional resources and some helpful examples. The IRS also has an interactive ERC Eligibility Checklist that tax professionals and taxpayers can use to check potential eligibility for ERC. It's also available as a printable guide.  

Eligibility Highlights

The ERC is available to eligible employers that paid qualified wages to some or all employees after March 12, 2020, and before Jan. 1, 2022. Eligibility and credit amounts vary depending on when the business impacts occurred. The ERC is not available to individuals.


Copyright 2024 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536

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--Last Update 02/14/24