Goldburd | Goldburd McCone LLP

For nationwide tax guidance, call:
212-235-1537 or toll-free at 866-712-9505.

Goldburd | Goldburd McCone LLP

For nationwide tax guidance, call: 212-302-9400 or toll-free at 844-653-2873.

Serving Individual And Corporate Tax Clients Nationwide From Our New York, New Jersey, Florida And California Offices

Steven Goldburd and Benjamin A Goldburd

Since 1983, our tax firm has skillfully represented individuals and corporations across the United States and around the globe from our offices in New York, New Jersey, California and Florida.

What do I need to know about the IRS crack down on fraudulent ERC claims?

On Behalf of | May 11, 2023 | Business Tax

Filing tax returns is never easy. Add in business ownership and the rules get even more complex. Throw in a pandemic that led to tax changes to help businesses running and businessowners were left with a mess of tax laws that even some tax filing professionals were struggling to understand.

But what happens when these business owners make a mistake when trying to follow these rules? The Internal Revenue Service (IRS) is not known for its understanding. Instead, it is known for cracking down on potential violations. Its current focus involved a pandemic related tax credit that lawmakers intended to help business owners get through the tough times that came with the pandemic.

What is this tax credit?

Lawmakers passed a number of tax changes as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES) in 2020. One that benefits business owners is the Employee Retention Credit (ERC).

The ERC allows tax credits for employers who provided paid sick and family leave wages to employees during the pandemic. Although beneficial, the rules are difficult to follow and have led to mistakes. Some mistakes were honest errors, but the IRS claims others rise to the level of criminal wrongdoing. As a result, it has increased its efforts to audit filings that include ERC claims.

What if I claimed ERC on my returns?

There are situations when this credit is valid. Unfortunately, there were also filings that appear to be blatantly fraudulent attempts to take money from the government. To make matters even worse, a number of third parties advertised “expertise” in the subject and stated that they could help business owners make the most of these tax savings. The advice that these businesses gave taxpayers was not always accurate and led to questionable filings.

One primary example involved the idea that a business owner could claim an ERC without reducing the wage deductions. In reality, the IRS expects those who file an ERC to adjust their wage deductions to reflect this credit. If the ERC was for a tax year that was already filed, the business likely needed to file an amended return to reflect this change.

Those who failed to do so or who claimed the credit without the needed paperwork to back it up could find themselves the subject of a tax audit.

What happens during an ERC tax audit?

The current IRS crackdown focuses on two things: the individual or business filings and third parties that offered tax advice. Both could face charges of wrongdoing. These third parties that claimed to provide advice on how to take advantage of this credit and the businesses who followed the advice are both the subject of increased IRS scrutiny.

As a recent case highlights, the IRS will doggedly pursue these allegations. In this example, the agency has on a business that offered tax guidance. The IRS claims that the poor guidance led to over $11 million in fraudulent returns and has moved forward with criminal charges for tax fraud against the owners. Their clients could also find themselves the subject of future investigations.

Those who find themselves in this situation are not alone, and they do not need to face the IRS alone either. Taxpayers have the right to legal counsel to provide guidance and advocacy during these audits. The attorneys at Goldburd McCone are experienced in tax audits and can work to better ensure your interests are protected throughout the process.