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IRS Criminal Investigation Unit Continues to Investigate Fraudulent ERC Claims

S.J. Steinhardt
Published Date:
Feb 21, 2024

As the IRS investigates bogus claims for the Employee Retention Credit (ERC), its Criminal Investigation unit (IRS CI) will also conduct educational sessions for tax professionals about it, Accounting Today reported.

These sessions, which are taking place this month in at least 23 states and the District of Columbia, are part of a nationwide initiative to ensure that tax professionals have the latest information about ERC claims and that they understand ERC eligibility criteria. The sessions are specifically designed for tax professionals who have claimed ERCs for their clients on previous years’ tax returns. Invitations to attend have been arriving by mail through the U.S. Postal Service.

As of Jan. 31, 2024, IRS CI has initiated 374 investigations involving more than $2.95 billion worth of potentially fraudulent ERCs in tax years 2020, 2021, 2022 and 2023, a spokesperson told Accounting Today. Eighteen of the 374 investigations have resulted in federal charges to date. Of those 18 cases, 11 investigations have resulted in convictions, six have been sentenced, and the average sentence has been 24 months.

"During the COVID-19 pandemic, tax credits and loans were extended to struggling businesses," said IRS CI chief Jim Lee, who will be retiring in April. "We've seen many of these COVID-relief programs and credits misappropriated—sometimes knowingly and in other instances not. These educational sessions will help tax preparers navigate the complexities of ERC claims to ensure they're in compliance with U.S. tax laws."

In September, the IRS imposed a moratorium on the processing of all ERC claims through the end of 2023 in response to a proliferation of fraudulent claims. A month later, the agency established a new process that gave employers the ability to rescind what may have been inaccurate ERC claims and, in December, it began disallowing thousands of claims that did not meet the eligibility requirements.

The IRS also established a voluntary disclosure program for businesses that received and deposited refunds after filing erroneous ERC claims. The program, which runs through March 22, allows employers that received questionable ERCs to repay 80 percent of the claims received.

Last week, the IRS highlighted seven warning signs of questionable ERC claims and provided information about its precise requirements, including eligibility and other information to provide general information about eligibility, claiming the credit, scams and more, its ERC FAQ page.

Appearing before the U.S. House of Representatives’ Committee on Ways and Means last week, IRS Commissioner Daniel Werfel was asked about the ERC provisions of the tax legislation currently awaiting action by the U.S. Senate. Those provisions would end the ERC and impose penalties on promoters as a means of funding much of the $78 billion cost of the bill.

"The legislation that's under consideration would prohibit ERC claims from coming in after a date certain," Werfel replied, according to Accounting Today. "One of the things that impacts our ability to make sure that we're getting to the eligible claims, among the ineligible, is the size of the inventory. … Once we issued the moratorium, the influx of claims dropped in half, but I think we got 17 to 20,000 last week. That inventory is growing, and it's growing with a lot of ineligibility. Helping us pause the incoming at this point, so we can find those that have submitted that are eligible. We need that help."

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