As IRS Scrutinizes ERC Claims for Fraud, Withdrawal Remains an Option for New Jersey Business Owners Who Have Concerns

Offshore Account Update

Posted on June 14, 2024 |

The Internal Revenue Service (IRS) is continuing to scrutinize Employee Retention Credit (ERC) claims for signs of fraud—and it is taking its time in doing so. However, this isn’t necessarily by choice, as the IRS recently disclosed that it is in the process of reviewing most of the remaining 1.4 million ERC claims manually because its “aged” system for digitizing paper returns cannot adequately assess signs of fraud. What does this mean if your business’s ERC claim is still pending? New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains:

Facing Scrutiny for ERC Fraud Remains a Very Real Concern

The ERC was a pandemic-era program. But, while the pandemic may be in the rearview mirror, combating ERC fraud remains a top priority for the IRS and other federal law enforcement authorities. While the IRS is continuing to process pending ERC claims, as it does so it is looking for various “red flags” which may signal that further scrutiny is warranted.

Thus, for businesses that claimed the ERC, facing scrutiny for ERC fraud remains a very real concern. This is true not only for businesses whose ERC claims are still pending but also for those who have already received their refunds. As revenue agents pour over pending filings, Special Agents with IRS Criminal Investigation (IRS CI) are examining closed ERC claims to determine whether refunds may have been issued inappropriately.

In both scenarios, allegations of ERC fraud can present substantial risks. The IRS isn’t just denying invalid ERC claims; it is also conducting comprehensive audits in many cases. When Special Agents at IRS CI uncover evidence of intentional ERC fraud, they are working with prosecutors at the U.S. Department of Justice (DOJ) to pursue criminal charges.

Withdrawal Remains an Option for Business Owners Who Have Concerns

With all of this in mind, what should you do if you have concerns about the validity of your New Jersey business’s ERC claim? 

If your business hasn’t yet received a refund, one option may be to file for withdrawal. While the IRS’ Voluntary Disclosure Program for invalid ERC claims has closed, its withdrawal program remains open. However, withdrawing an invalid ERC claim doesn’t necessarily preclude an ERC fraud investigation—so business owners who may be at risk of facing criminal allegations may need to consider other options as well. Depending on the circumstances, these options may include submitting a voluntary disclosure under IRS CI’s general Voluntary Disclosure Practice, among others.

Discuss Your Options with New Jersey Tax Attorney Kevin E. Thorn

If you have questions or concerns about the IRS’ ongoing efforts to uncover and prosecute ERC fraud, we encourage you to contact us promptly for more information. New Jersey tax attorney Kevin E. Thorn can explain your options and help you make informed decisions about your next steps. To request an appointment, please call 201-842-7696 or contact us confidentially online today.

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