Congress intended the ERC to subsidize employers who kept employees on payroll during the period of financial pressure due to the pandemic. But over the past two years, the IRS has publicly sounded the alarm that many ineligible taxpayers were filing ERC claims. In particular, the IRS identified as especially dubious ERC promoters who charged contingency fees based on the amount of ERC refunds secured. Consequently, the IRS has made the ERC a priority in both its civil and criminal enforcement efforts, dedicating significant resources to training IRS personnel who will conduct audits and criminal investigations.
The IRS’s ERC enforcement campaign is ramping up in early 2024. Many organizations that claimed the ERC will be subject to audits and investigations in the coming days. Nonprofit employers who claimed the ERC are just as likely to be subject to scrutiny as their for-profit counterparts.
Some evidence, and this author’s own experience, suggests that certain ERC promoters heavily targeted particular nonprofit industries with the marketing of their ERC services. Of course, not all ERC claims solicited or submitted by promoters were necessarily incorrect—but the IRS is likely to closely scrutinize such claims due to the identity of the preparer. For nonprofits that relied on promoters to determine their eligibility for the ERC, there may be a significant risk of an audit.
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