The IRS recently began reviewing whether claims for the Employee Retention Credit (ERC) were made by taxpayers who truly qualified. In fact, as cited in an article last week by Bloomberg Tax, the IRS has already flagged 11,096 claims, totaling more than $2 trillion, as suspicious. In addition, the IRS has issued warnings about third-party businesses and consultants aggressively soliciting to help taxpayers claim the ERC. These companies use promises of large payouts to draw taxpayers into possibly fraudulent claims, charging either large upfront fees or fees based on the amount of the credit claimed, often a large percentage, all the while assuring the taxpayer that the qualifications for the credit are completely legitimate. However, through ignorance, negligence, or malice, they fail to take into consideration the full complexity of qualifications for the credit. These assurances end up being false, and ultimately, it is the taxpayer that has to pay, not only by returning the credit, but also in interest and penalties levied by the IRS. These taxpayers are also often not being informed that the claim for this credit will impact their income tax returns, many times resulting in the need for an amendment!
The IRS gives such fraud top priority, and with the recent Inflation Reduction Act (IRA) increasing their funding significantly, they intend to increase efforts to detect and prosecute these fraudulent claims. The IRS urges taxpayers to be wary of advertisements and solicitations promising too-good-to-be-true tax savings.
If you have questions regarding ERC eligibility, contact one of our tax professionals today.
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Submitted by William Cathey
Sources: Internal Revenue Service and Bloomberg Tax