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IRS ERC Fraud Investigations Targeting “Promoters:” What Tax Professionals Need to Know

September 16, 2024

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As the Internal Revenue Service (IRS) continues to focus on uncovering Employee Retention Credit (ERC) fraud and recovering fraudulent credits and refunds from taxpayers, it is also devoting resources to targeting so-called “promoters.” While the IRS’ definition of “promoters” includes bad actors who operated ERC filing scams during and after the COVID-19 pandemic, it also includes accountants and other tax professionals who assisted clients with their ERC filings. As a result, many tax professionals are now facing ERC-related investigations, and avoiding unnecessary consequences in these investigations requires the representation of an experienced Texas tax fraud lawyer.

The IRS Has Placed Much of the Blame for ERC Fraud on “Promoters”

Without absolving business owners of responsibility, the IRS has placed a significant portion of the blame for the substantial fraud under the ERC on so-called “promoters.” The IRS has recently provided opportunities for business owners who fell victim to promotion scams to come forward without incurring penalties, and it has repeatedly stated that it intends to target promoters for the foreseeable future. Most recently, in an August 8, 2024 News Release, the IRS wrote:

“The IRS is gathering information about suspected abusive tax promoters and preparers improperly promoting the ability to claim the ERC. The IRS’s Office of Promoter Investigations has received hundreds of referrals from internal and external sources. The IRS will continue civil and criminal enforcement efforts of these unscrupulous promoters and preparers.”

As this makes clear, while the IRS is targeting scam artists, it is also targeting tax preparers and others suspected of assisting with the submission of false and fraudulent ERC claims. While the IRS is pursuing civil tax preparer penalties in some cases, its Criminal Investigation Division (IRS CI) is also conducting inquiries focused on gathering the evidence needed to pursue criminal prosecution. In criminal cases, tax preparers and others can face not only substantial fines but also federal imprisonment.

When Can a Tax Professional Be Labeled a “Promoter?

This raises a critical question: When can a tax professional be labeled a “promoter?

The IRS broadly defines a “promoter” as anyone who encourages, enables or assists with the preparation of a fraudulent federal tax filing. As a result, not only can individuals face scrutiny based on their efforts to encourage fraudulent filings (which is often done in exchange for a percentage of the refund received), but they can also face scrutiny based on providing assistance to taxpayers who submitted fraudulent ERC claims.

Promoting fraudulent filings can involve either soliciting prospective clients for tax preparation and filing services or encouraging existing clients to file fraudulent claims. Tax preparers who look the other way or fail to conduct adequate due diligence to substantiate their clients’ claims can face “promotion” allegations as well.

Of course, even if a tax professional cannot properly be labeled a “promoter,” facing ERC-related scrutiny from the IRS or IRS CI is still risky. Tax professionals can face penalties for other violations as well, and with the IRS’s focus on ERC fraud enforcement, targeted tax professionals must be able to affirmatively demonstrate compliance in order to avoid penalties or prosecution. This is where experienced legal representation is critical. An experienced Texas tax fraud lawyer will be able to examine your records and determine what defenses you have available, and then he or she will be able to assert these defenses on your behalf.

What Risks Do Tax Professionals Face in ERC Fraud Promoter Investigations?

For accountants and other tax professionals targeted in ERC fraud promoter investigations, the risks can be substantial. Broadly speaking, the risks of facing a federal promoter investigation fall into three main categories:

  • Civil Monetary Penalties from the IRS – The IRS has the authority to directly impose civil monetary penalties for violations of federal law. It has established several tax preparer penalties, and multiple penalties can apply in some cases.
  • Discipline from the IRS’ Office of Professional Responsibility (OPR) – Allegations of promoting ERC fraud can also lead to discipline from the IRS’s Office of Professional Responsibility (OPR). Along with imposing monetary penalties, the OPR can suspend (or revoke) tax professionals’ privileges to practice before the IRS.
  • Criminal Charges in Federal Court – If accused of intentionally aiding clients with the submission of fraudulent ERC claims, accountants and other tax professionals can face criminal charges in federal court. These charges—which can include conspiracy, aiding and abetting, and fraud (among others)—carry substantial fines and prison time, as noted above.

Facing scrutiny from the IRS (or IRS CI) can have other consequences as well. For example, allegations of violating federal law (even if unproven) can trigger an obligation to file a report with your state licensing board—which can lead to further disciplinary action. Your clients may also choose to file suit for malpractice—and even if you have strong defenses available, you will incur additional costs putting on your defense.

What Should You Do if the IRS (or IRS CI) Contacts You?

With all of this in mind, what should you do if the IRS (or IRS CI) contacts you in relation to one or more of your clients’ ERC claims?

Any time you are facing scrutiny from the IRS or IRS CI, your first step should be to engage experienced defense counsel. You do not want to allow the inquiry to proceed without your involvement. An experienced Texas tax fraud lawyer will be able to intervene on your behalf, determine the nature and scope of the allegations at issue, formulate an effective defense strategy, and work to protect you by all means available.

Request a Confidential Consultation with a Texas Tax Fraud Lawyer at Brown Tax, P.C.

If you are facing an ERC fraud promoter investigation from the IRS or IRS CI, it is imperative that you speak with a lawyer as soon as possible. Our lawyers are handling ERC fraud promoter investigations throughout Texas and nationwide. To request a confidential consultation with a Texas tax fraud lawyer at Brown Tax, P.C., please call 888-870-0025 or contact us confidentially online today.

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