October 25, 2023

The Skinny on ERTC Fraud and Audits

Business Income Tax


Minutes to read

The Employee Retention Tax Credit (ERTC) has been under the microscope recently due to a significant rise in false claims and audits.

Initially, the ERTC was designed to subsidize employers who didn’t lay off employees due to COVID-19 but kept paying them while there was no work. However, due to the overall economic downturn, it was expanded to include (for small businesses) any organization that suffered a revenue decline, regardless of COVID-19 safety orders.

Here are some more specific eligibility requirements for the ERTC:

  • The employer suffered a full or partial suspension of operations limiting commerce, travel, or group meetings due to COVID-19 and orders from an appropriate governmental authority.
  • The employer experienced a significant decline in gross receipts during 2020 (50% compared to the same quarter of 2019) or a decline in gross receipts during the first three quarters of 2021 (20% compared to the same quarter of 2019).
  • The employer qualified in the third or fourth quarters of 2021 as a recovery startup business.

As this program matured, so did the challenges associated with its implementation.

ERTC Fraud

While the program was designed with genuine intentions, there was a worrisome surge in fraudulent ERTC claims recently. The aggressive promotion of the ERTC, particularly on digital platforms like social media, TV, and the internet, led to an influx of claims.

ERTC Scams

The problem isn't limited to promotions and fraudulent claims. Scammers exploit this situation, luring unsuspecting businesses into fraudulent schemes that seem too good to be true.

Their plans are fueled by misinformation and persuasive maneuvers that lead to confusion surrounding ERTC qualification.

With catchy advertising campaigns and alluring promotions, businesses are increasingly being nudged toward the ERTC, putting themselves at unnecessary financial risk.

IRS Audits

Recognizing the increase in fraudulent ERTC claims, the Internal Revenue Service (IRS) has stepped in.

The IRS halted new ERTC claim processing back in September. This moratorium will persist until year-end, a move aimed at curbing the onslaught of fraudulent claims.

The IRS has reallocated its resources to prioritize reviewing ERTC claims, emphasizing compliance and legitimacy.

A surge in audit activities and an uptick in criminal investigations into potentially false claims are now on the IRS's radar. As a result, several ERTC claims are under the lens, with many already queued up for an audit.

For businesses considering or who have already tapped into the ERTC, it's crucial to understand the program's nuances and evolving landscape. Engaging with a qualified tax professional who can provide accurate advice on ERTC claims is essential.

Remember, the allure of quick financial gains should never overshadow the importance of adhering to program guidelines and maintaining one's business integrity.

For help with all things Employee Retention Tax Credit, contact Brian Haines.

Brian Haines
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