Most taxpayers have likely received a solicitation recently claiming that they may be entitled to thousands of dollars in employee retention tax credits. The solicitations involve the Employee Retention Credit (ERC), a payroll tax credit created by the Coronavirus Aid Relief and Economic Security (CARES) Act that has been credited with preserving millions of jobs during the pandemic. According to the IRS, many of these solicitations are offering credits that are “too good to be true”—in some cases, they are downright fraudulent.
The IRS is targeting these ERC schemes aggressively. Within the past month, it has issued its third warning to taxpayers to be wary of ERC promoters, singled out ERC fraud on its 2023 “Dirty Dozen” list of abusive tax schemes, and issued guidance, doubling as warnings, to tax professionals with respect to the requirements of Circular 230 as applied to ERC claims (IR-2023-49, Mar. 20, 2023, https://bit.ly/3K4n50B). Criminal prosecutions have begun, and promoter investigations and congressional investigations are likely to follow.
It is likely that tax preparers have encountered several clients who are considering claiming ERC credits after responding to such promoter advertisements. This article explains the ERC program, the ways in which it has been vulnerable to fraud, the government’s enforcement efforts around ERC fraud, and what tax practitioners can do to assist their clients, and themselves, when it comes to properly reporting ERC claims.
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Published with permission from The CPA Journal, 2023 a publication of the NYSSCPA.