IRS Hosts Webinar Addressing Employee Retention Credit Fraud and Response

On July 25, 2023, the Office of Fraud Enforcement and National Fraud Counsel of the IRS hosted a webinar on the Employee Retention Credit (ERC) and discussed the current landscape of enforcement for tax professionals. This followed the release on July 24, 2023, of another warning by the IRS to taxpayers not to fall prey to unscrupulous tax credit providers who “wildly misrepresent and exaggerate who can qualify for the ERC.”

The panel discussed various ERC eligibility criteria and key areas of compliance, including the exclusion of certain employees from the definition of qualified wages, the requirement to reduce wage expense on amended income tax returns for the ERC, and the interaction between the ERC and other grant programs/tax credits. If you want a more robust analysis of these rules, read our article here or watch our ERC Audits on-demand webinar.

Of particular interest for businesses was a section devoted to the IRS’ efforts to reduce and prevent fraudulent ERC claims. The panel discussed the level of collaboration among multiple divisions of the IRS to identify and prosecute instances of fraud. In addition to the Office of Fraud Enforcement, the panel called out specifically the Office of Promotor Investigations and Office of Criminal Investigations, so professionals in the ERC business should be on the lookout for increased enforcement activity from those offices.

The panel also identified the top three fraudulent schemes to date:

The panel did not devote significant time to civil IRS enforcement of ERC claims, though it indicated that the civil auditors have received specified training on items to note when executing audits, and when to pursue a criminal or fraudulent IRS track. We have seen IRS audits explode in the last year or so and IRS agents have become better educated on the rules and more aggressive in their approach to claims they perceive as inappropriate. The panel did say that the IRS was actively pursuing promotors of aggressive or frivolous positions and would be seeking both criminal and civil penalties under various statutes. The panelists rounded out the webinar by providing an overview of the various ways in which businesses and tax professionals can report suspected ERC fraud.

Overall, the panel revealed no new or groundbreaking information about the rules governing the ERC, but it did provide some insight into the coordination occurring within the various divisions of the IRS. This is almost certain to lead to increased enforcement activity. If you receive notice of an IRS audit, or if you are an ERC provider that received notice of a promoter audit, the ERC specialists at Withum can help represent you before the IRS.