By: Nick J. Richards, Esq.
The Employee Retention Credit, sometimes called the Employee Retention Tax Credit (ERC or ERTC), is a refundable tax credit available for businesses that continued paying employees during the COVID-19 pandemic while their business operations were fully or partially suspended due to a government order, or they had a significant decline in gross receipts. According to the IRS, the agency has received 3.6 million requests for the ERC. And now, according to the IRS, thousands of businesses that received the credit now face tax audits and enforcement.
The IRS announced on Sept. 14, 2023:
A moratorium on processing new claims (600,000) to prevent taxpayers from being scammed by “predatory tactics” and “aggressive marketing”;
Hundreds of criminal investigations of promotors and businesses with “frivolous” ERC claims, and;
Thousands of audits for ERC claims.
The IRS is “increasingly alarmed about honest small business owners being scammed by unscrupulous promoters” and has advised such businesses to stop any pending effort to apply for the ERC and to review IRS guidance: ERC eligibility , frequently asked questions , and a question-and-answer guide . Meanwhile, taxpayer businesses and ERC promoters that receive IRS Audit Letters need to contact a tax attorney before talking to anyone else.
With past audit programs (and we should assume with the ERC audits), the IRS has instructed their agents to talk to taxpayers early in the audit before they hire an attorney. The reason is that taxes are complex and sometimes the decisions that businesses make, that seem simple, fair, and necessary for survival, are technically incorrect and potentially criminal. The difference can be the answers the taxpayer gives to the IRS.
Over my 20+ years of tax audits and trials, I have seen numerous cases that were lost when the taxpayer spoke to the IRS prior to receiving advice from a tax attorney. Cases are also lost because the taxpayer is represented during the audit by the same individual who filed the tax return – here being the ERC Promoter. Simply put, if the representative faces a potential criminal investigation for their ERC promotion, there is a significant conflict of interest in representing the taxpayer that cannot be overcome. And, subsequently, it is not in the taxpayer’s interest and may be detrimental, to be represented by the ERC promoter or return preparer.
Surviving an IRS audit requires the expertise of an experienced tax professional free from conflicting interests. In the case of the IRS’ targeted ERTC audit program – the tax professional should be a tax attorney with significant experience. The tax attorneys at Greenspoon Marder, led by a former IRS trial attorney, have successfully navigated numerous tax audits for their clients – IRS, BSA, state, and local tax audits. The ERTC audits are serious matters that require the serious expertise we provide.
If you received an ERTC Audit Letter, you should hire an experienced tax attorney and expect the following:
Revenue Agents trained to secure and develop the evidence necessary to disallow the ERTC;
Negligence Penalties and criminal prosecutions if willful intent to file a false claim;
Requests for voluminous documents and information;
Requests for in-person interviews;
Revenue Agents that want to conduct their audit at the taxpayer’s business;
Expansion of audits to include additional years and issues and;
Dedicated IRS Counsel, Appeals Officers, and Collection Agents.
For those businesses who were scammed by a promoter and have not received the ERTC refund yet – it is likely that the claim has been frozen. The IRS asks that you consider withdrawing the claim as they are in the process of providing procedures for such withdrawals. Meanwhile, the IRS will also be providing a settlement program for businesses that received an ERTC that they believe was in error. The settlement program will allow a business that voluntarily complies to repay the claim and avoid penalties and future compliance action. Consistent with other Voluntary Compliance Programs, the ERTC settlement program will likely last for a couple of years, and, once over, taxpayers who did not comply will face more serious audits and consequences.
Greenspoon Marder represents business and individual taxpayers throughout the United States. We fight for our clients, provide them with honest and complete advice, and resolve tax matters in the best and most expedient method possible. If you are available to discuss your tax matter today, click here to speak with one of our Denver tax attorneys .
About Greenspoon Marder Greenspoon Marder LLP is a full-service law firm with over 240 attorneys and more than 20 office locations across the United States. With operations from Miami to New York and from Denver to Los Angeles, our firm attracts some of the nation’s top talent in key markets and innovation hubs. Our core practice areas include Real Estate, Litigation, and Transactional Services, complemented by the capabilities of a full-service firm. Greenspoon Marder has upheld a spot on The American Lawyer’s Am Law 200 as one of the top law firms in the U.S. since 2015, and our goal is to provide exceptional client service by developing a thorough understanding of each client’s business needs and objectives in order to provide strategic, cost-effective solutions.
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