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7 “Suspicious Signs” for Fraudulent ERC Claims According to the IRS

News, Offshore Account Update

Posted in on February 29, 2024

The Internal Revenue Service (IRS) recently issued a News Release in which it encourages eligible businesses to take advantage of the limited-time Employee Retention Credit Voluntary Disclosure Program (ERC VDP). Filing under the ERC VDP, which is open until March 22, is an option for businesses that improperly received refunds under the Employee Retention Credit program. Those who have filed but have not yet received refunds must consider filing for withdrawal instead.

But, as Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, has discussed previously, filing under the ERC VDP and filing for ERC withdrawal both present certain risks. As a result, informed decision-making is critical.

When Should Business Owners Consider Filing Under the ERC VDP or Filing for ERC Withdrawal?

Despite these risks, filing under the ERC VDP or filing for ERC withdrawal will be the best option in many circumstances. To decide whether to file, business owners must first assess whether their ERC claims are invalid. According to the IRS, the following are all “suspicious signs an ERC claim could be incorrect”:

  • The Business Didn’t Exist or Didn’t Have Payroll – One of the most obvious signs of ERC fraud, according to the IRS, is the fact that a business didn’t exist or didn’t have any payroll expenses during one or more quarters for which it claimed the ERC.
  • The Business Claimed the ERC Based on a Supply Chain Disruption – A supply chain disruption, on its own, was insufficient to justify a claim for the Employee Retention Credit.
  • The Business Wasn’t Subject to a Government Order – To qualify for the ERC, a business must have experienced a full or partial suspension of its operations due to a government order. If the business was located in an area that wasn’t subject to an order or claimed the credit for a period after an applicable government order expired, it may need to file under the ERC VDP or file for withdrawal.
  • The Business Improperly Calculated the ERC – Claiming an excessive credit amount (i.e., claiming the ERC for non-qualifying wages) is also among the most common forms of ERC fraud according to the IRS.
  • The Business Claimed the ERC for Too Many Quarters – While the ERC was available for most of 2020 and 2021, according to the IRS, “[q]ualifying for all quarters is uncommon.” As a result, business owners should carefully reassess their eligibility for each quarter that they claimed the ERC.
  • The Business Claimed the ERC for Entire Quarters – Along with reassessing their eligibility for each quarter, business owners should also reassess whether they were eligible to claim the ERC for the entirety of each quarter or just a portion. Under the terms of the ERC, businesses were only entitled to the credit during the period that their operations were fully or partially suspended.
  • The Business Worked with an ERC Refund Promoter – The IRS has repeatedly issued warnings about fraudulent ERC refund promoter schemes. Even if a business relied on a fraudulent promoter, it must still rectify any invalid filings.

While these are common issues with ERC claims, these are not the only issues that can render an ERC claim invalid. If you need help assessing the validity of your Virginia business’s ERC claim (or claims), you should consult with an experienced tax attorney promptly.

Request an Appointment with Virginia Tax Attorney Kevin E. Thorn

If you need more information about filing under the ERC VDP or filing for ERC withdrawal, contact us today. Call 703-752-3752 or contact us confidentially online to request an appointment with Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group.

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