File an Ineligible Employee Retention Credit? Here is a Way Out

employee retention creditIn the press of the pandemic and after, many businesses and other entities filed Employee Retention Credit (ERC) claims. In 2023, an investigation by the Internal Revenue Service (IRS) found many of those claims were not eligible. What happens next?


If your business or organization filed an ERC claim that might be fraudulent—or was filed on your behalf—the IRS is currently providing channels to withdraw a pending claim or voluntarily disclose ineligible ERC monies you have already received.


While a productive and worthwhile program for employers and their workers trying to hang on through the pandemic years, the ERC continues to be seen as a watershed moment for scammers and con artists. So far, IRS criminal tax investigations have triggered 323 examinations for the years 2020 through 2023. These investigations have identified approximately $2.8 billion in fraudulent ERC claims so far.


With the breadth of the tax fraud, the IRS announced several measures toward the end of 2023. These measures included a moratorium on new ERC claims processing, stepped-up audits and prosecution of fraudulent claims, and a program for claimants to withdraw or disclose fraudulent claims.


The IRS believes that some of the fraudulent ERC claims submitted are related to marketing outfits that draw in businesses and take money upfront with a promise that the ERC claim will pay off down the line.


Why you should pay attention to ERC fraudulent claim relief offerings from the IRS

If you know that your business did not quite qualify for the ERC refund you already received, or you have such a claim pending—it is worth your time and effort to address the situation now. The IRS is actively pursuing fraudulent claims and is likely to be focused on that type of fraud for some time to come. The situation is clear—if you did not qualify for an ERC payment you received, you must pay it back, with penalties and interest added. What you thought was an easy paycheck could sink you into a significant tax liability.


There are two principal programs for those who were convinced to file an ERC claim that was ineligible:

  • If you meet the criteria, and the IRS has not paid the ERC claim, you can withdraw your claim.  If your third-party payroll vendor filed the claim, they will likely need to initiate the process.
  • In December 2023, the IRS sent 20,000 letters notifying taxpayers that their ERC claims had been disallowed. If you have already received an ERC payment and your claim is ineligible, you can reduce the impact by using the ERC Voluntary Disclosure program. The program requires that you repay only 80 percent of the amount you received, and penalties and interest are waived if you pay the sum in full when you sign a closing agreement with the IRS.


If you have concerns about the ERC claim you submitted and these programs, speak with an experienced tax attorney to mitigate the likelihood of an ERC claim investigation by the IRS down the line.


Speak with an experienced tax lawyer if you receive a notice from the IRS

Robert J. Fedor Esq. LLC serves local, domestic, and international clients challenged by tax litigation, criminal tax allegations, and offshore tax inquiries. When you need strategic, experienced representation on criminal tax matters, call 800-579-0997 or contact us online today.  We have offices in Cleveland and Chicago.


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