IRS issues additional warnings against aggressive ERC claims

The IRS continues to urge taxpayers to avoid engaging with employee retention credit (ERC) “credit mill” firms that are “aggressively promoting … ERC schemes on radio and online.” (IR-2023-40)

Key takeaways

• IRS criminal investigations are ongoing. The IRS is actively auditing and conducting criminal investigations related to these false, and in some cases fraudulent, claims.
• ERC promoter claims open the IRS’ 2023 “Dirty Dozen” tax scam list.

Background

One of the two principal means for qualifying for the ERC is via the “suspension test,” which is met if an employer experiences a full or partial suspension of, or modification to, their business during any period between March 13, 2020, and Sept. 30, 2021. This suspension or modification must be the result of orders from an appropriate domestic governmental authority (federal, state or local) limiting commerce, travel or group meetings (for commercial, social, religious or other purposes) due to COVID-19. 

The suspension test is highly subjective and critically dependent on each employer’s facts and circumstances. This creates a significant gray area and, in turn, myriad challenges to taxpayers and practitioners in attempting to analyze whether the criteria have been met (for additional details, please see our 2021 year-end tax letter article). This gray area has also provided a space for certain firms to aggressively promote the idea that all businesses qualify for the credit