As IRS “Accelerates” ERC Enforcement, It Reminds of the Options that Remain Available
Even with 2025 fast approaching, Employee Retention Credit (ERC) fraud enforcement remains a top priority for the Internal Revenue Service (IRS). As we have discussed previously, the IRS has identified billions—and potentially trillions—of dollars in taxpayer losses resulting from ERC fraud, and it is now working to claw back as many of these losses as possible. At the same time, the IRS is also continuing to process valid ERC claims (while looking for invalid claims in the process), and it has recently stated that it is accelerating its efforts to ensure both proper payment and full compliance. Learn more from Texas IRS lawyer Lawrence Brown:
The IRS is Still Working to Uncover and Prosecute ERC Fraud
The ERC program was intended as a source of financial relief for employers affected by the COVID-19 pandemic in 2020 and 2021. However, eligible employers were able to file claims under the program retroactively until the IRS issued a moratorium (due to concerns about widespread fraud) on September 14, 2023. The deadline to file claims for the 2020 tax year has now passed, and the deadline to file claims for the 2021 tax year is April 15, 2025.
While the IRS is once again processing new ERC claims, it is also continuing to maintain its focus on uncovering and prosecuting ERC fraud. Employers that have not withdrawn their pending ERC claims can expect to have these claims reviewed by the IRS—with this review either leading to payment or leading to additional scrutiny.
The IRS is Once Again Processing Pending ERC Claims
In light of the fact that the IRS is once again processing pending ERC claims, employers (and others) with pending claims should take the opportunity to reassess their eligibility—and take remedial action if necessary. While those with pending claims still have time to avoid enforcement action if necessary, many options go off the table once the IRS raises concerns.
In an October 10, 2024 News Release highlighting the IRS’s efforts to “accelerate” both ERC claim processing and ERC enforcement, the agency also reminds of the options that are currently available for ERC filers who have fraud-related concerns. These options include:
- Consolidated Claim Process for Third-Party Payers (TPPs) – Last month, the IRS announced a new option for third-party payers (TPPs), including payroll companies, that improperly claimed the ERC on behalf of their clients. As the IRS explains in its latest News Release, this consolidated claim process “lets a third-party payer that filed a prior claim with multiple clients ‘withdraw’ only some clients’ claims while maintaining the claims of the qualifying clients.” Both TPPs and their clients will want to consider whether a withdrawal filing is necessary.
- ERC Voluntary Disclosure Program – The IRS has reopened its ERC Voluntary Disclosure Program (ERC VDP) through November 22, 2024. As the IRS explains, the ERC VDP “allow[s] businesses to correct improper payments at a 15% discount and avoid future audits, penalties and interest.” Although the IRS established the ERC VDP primarily as a way for employers and others who fell victim to aggressive ERC promoter schemes to avoid prosecution, eligibility is not limited to these filers. While the window to file is closing very soon, this may be a highly desirable option for those who need to take action to avoid the possibility of facing ERC-related criminal charges.
- ERC Withdrawal – ERC filers who need to remedy fraudulent filings and who are not eligible to participate in the ERC VDP may still be able to file for withdrawal. There are strict eligibility criteria here as well, and taxpayers filing for withdrawal must be careful to ensure that they meet all substantive and procedural requirements. With this in mind, working with an experienced Texas IRS lawyer to evaluate all potential options and pursue the best path forward is strongly recommended.
What if you don’t have concerns about your company’s pending ERC claim? If you are confident that your company’s pending ERC claim complies with the law, then you can simply wait to receive payment from the IRS (though you may still want to consult with a Texas IRS lawyer to confirm that this is the best approach). On October 10, 2024, the IRS reported that it is currently processing around 400,000 claims that it has determined to be valid, with a total value of around $10 billion.
High-Income and High-Net-Worth Taxpayers with ERC-Related Concerns Have Options Available
Importantly, in addition to examining pending ERC claims, the IRS is also continuing its efforts to re-examine previously accepted ERC claims and determine whether enforcement action is warranted. While the ERC VDP remains an option for those who received improper ERC payments through November 22, 2024, once this deadline passes, those who have fraud-related concerns will need to pursue other options for avoiding IRS enforcement (and potentially criminal prosecution by the U.S. Department of Justice (DOJ).
What are these options? The short answer is, “It depends.” In some cases, high-income and high-net-worth taxpayers will need to consider a voluntary disclosure under IRS CI’s long-standing Voluntary Disclosure Practice. The Voluntary Disclosure Practice provides an avenue for taxpayers to resolve willful tax law violations, including willful ERC fraud. For those who inadvertently submitted invalid ERC claims that the IRS subsequently processed, other options will be more suitable. In all cases, however, prompt action is critical, as failing to correct an invalid ERC claim—even if the original filing error was non-willful—can expose taxpayers to substantial penalties.
Request a Confidential Consultation with Texas IRS Lawyer Lawrence Brown
If you need to know more about the options that are available for resolving invalid ERC claims in 2024, we invite you to get in touch. We represent high-income and high-net-worth corporate and individual taxpayers as well as tax professionals who assisted with fraudulent ERC filings. To request a confidential consultation with Texas IRS lawyer Lawrence Brown, please call 888-870-0025 or tell us how we can get in touch online today.