In March of 2020, Congress passed the CARES Act, a 2.2 trillion dollar stimulus package designed to help individuals and businesses adversely affected by COVID-19. The legislation included the employee retention credit (the “ERC”), a refundable credit of up to $28,000 per employee per year to assist certain employers whose operations were adversely affected by COVID shutdowns.  

The credit is extremely generous, but not all businesses qualify and determining whether a business qualifies can be a very involved process. Because the potential rewards were so great, many taxpayers were tempted to file claims seeking large ERCs for which they did not qualify. And many taxpayers were victimized by unscrupulous promoters who misled them into believing they qualified for the ERC when they did not and charging large fees equal to a substantial percentage of the amount of ERC credit.

The IRS is now actively investigating large numbers of suspicious ERC claims. Business owners who are found to have filed false claims can be required to repay any funds that they received, but can also be held liable for interest, substantial civil penalties, and in some cases criminal prosecution. Furthermore, even if the ERC claim is denied, filing a false claim is a crime that can result in large fines and/or extended jail terms. 

The IRS recently launched an ERC Voluntary Disclosure Program to encourage taxpayers to come clean. By making a timely and complete voluntary disclosure, the IRS may agree to settle for 80% of the ERC credit and waive interest. In cases where the taxpayer cannot repay the credit in a lump sum, the IRS will consider permitting the taxpayer to repay in installments. Unfortunately, participation in the program does not guarantee immunity from criminal prosecution.

The deadline for making a voluntary disclosure is March 22, 2024.  

Skeen & Kauffman has substantial experience representing clients in tax disputes. If you have concerns about whether an ERC claim was proper, or whether it is in your best interest to make a voluntary disclosure, please contact Steve Kauffman immediately to schedule an appointment.

_{[1] Generally, eligible employers are those which, between March of 2020 and December 31, 2021, experienced pandemic-related suspensions of operations and substantial declines in gross receipt while continuing to pay wages to employees are eligible to receive a credit of up to $28,000 per employee per year.}