IRS opens 2023 Dirty Dozen with warning about Employee Retention Credit Claims

On March 20, 2023, the Internal Revenue Service released the start of their annual Dirty Dozen list. This list traditionally includes a variety of common schemes taxpayers may encounter anytime but many of these schemes peak during filing season as people prepare their own tax returns or hire someone to help with their taxes. This list is not a legal document or a formal listing of agency enforcement priorities, but rather is intended to alert taxpayers and the tax professional community about various schemes at large.

To start this annual Dirty Dozen list of tax schemes, the IRS spotlighted Employee Retention Credits (“ERCs”) following blatant attempts by promoters to try and con ineligible taxpayers into claiming the credit. The IRS highlighted schemes from promoters who have been advertising refunds involving ERCs. These ads can be based on inaccurate information related to eligibility for and computation of the credit.

IRS Commissioner Danny Werfel emphasized the commitment of the IRS to address fraud in this area:

“The aggressive marketing of these credits is deeply troubling and a major concern for the IRS,” said Werfel. “Businesses need to think twice before filing a claim for these credits. While the credit has provided a financial lifeline to millions of businesses, there are promoters misleading people and businesses into thinking they can claim these credits. There are extremely specific guidelines around these pandemic-era credits; they are not available to just anyone. People should remember the IRS is actively auditing and conducting criminal investigations related to these false claims. We urge honest taxpayers not to be caught up in these schemes.”

Taxpayers should be aware third-party ERC promoters often do not accurately explain eligibility for and computation of the credit. They may make broad arguments suggesting all employers are eligible without evaluating an employer’s individual circumstances and without also providing specific limitations to qualify.

Properly claiming the ERC

Eligible taxpayers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have:

• Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings because of COVID-19 during 2020 or the first three quarters of 2021,
• Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
• Qualified as a recovery startup business for the third or fourth quarters of 2021.

Previous articles on the Employee Retention Credit:

https://gmco.com/american-rescue-plan-extends-the-employee-retention-credit/

https://gmco.com/irs-guidance-on-the-relationship-between-ppp-loan-forgiveness-and-the-employee-retention-credit/

https://gmco.com/new-stimulus-plan-employee-retention-credit-changes-and-ppp-loans/

https://gmco.com/cares-act-employee-rention-credit-and-employer-social-security-tax-deferral/

Our expert team of state and local tax professionals at Geffen Mesher is ready and prepared to help navigate this credit for your business and can be reached at SALT@gmco.com.