On Thursday, September 14, 2023, IRS Commissioner Danny Werfel ordered the IRS to immediately cease processing new claims for employee retention credits (“ERC”). The pause in processing will likely run until the end of 2023 and cause a substantial delay in processing claims.
The ERC is a tax credit for businesses and tax-exempt organizations that continued to pay their employees during the COVID-19 pandemic either during the cessation of their operations due to a government order or while they experienced a significant decline in gross receipts during certain eligibility periods in 2020 and 2021. The criteria for eligibility can be found here: https://www.irs.gov/pub/newsroom/erc-eligibility-if-then-chart.pdf.
However, as many small business owners may know, there are a multitude of companies who aggressively marketed their services to “help” submit claims for ERC in return for a percentage of any credits received by the taxpayer. As it turns out, many of these companies, by and large, took advantage of small businesses by causing them to unknowingly submit fraudulent claims to the IRS, taking a large percentage of the credits issued as their “fee,” and leaving the business to carry the risk and deal with the repercussions arising from their false filings. Those repercussions can be substantial and include disgorging some or all of the tax credits and potentially facing an IRS audit, criminal investigation, and related civil and criminal penalties.
If you have submitted an ERC claim to the IRS, with or without the assistance of one of the above-mentioned companies, you may be AT RISK of potentially severe legal consequences. The IRS is cracking down on fraudulent claims under this program and recently declared this a high priority enforcement area. As of July 1, 2023, the IRS had initiated over 250 criminal investigations related to ERC claims. The IRS also can conduct ERC-specific audits of your business to determine compliance. Such an audit is usually preempted by an information document request from the IRS. An IRS audit can result in a criminal investigation or civil penalties against your business.
If you find yourself in the above position or you are facing an ERC-related IRS audit or investigation, you need the assistance of professionals with extensive experience in healthcare, white collar crime and governmental investigations, and tax. And, even if you are not facing an audit or investigation, it may be in your best interest to take proactive measures to prevent or mitigate any potential legal exposure that you may have. The Healthcare lawyers at Mandelbaum Barrett PC are well-versed in all these areas and are ready and willing to assist you in any ERC-related matters.
Chair, Healthcare Practice Group
Partner, Healthcare Litigation and White Collar & Criminal Defense