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ERC Gets "Listed" - IRS Adds Employee Retention Credits to Dirty Dozen List

By Anthony P. Daddino on March 21, 2023
Each year, the IRS identifies a dozen transactions -- inclusive of scams, structured transactions, and other transactions that the IRS just doesn’t like – and puts them on its so-called “Dirty Dozen” list. Much like the Razzies, it’s a not a list you want to make. And this year the IRS has added for the first time Employee Retention Credits (“ERC”).

For those of you who have been paying attention, this move by the IRS is not surprising. Over the past year, the IRS has been increasingly vocal about the alleged abusive promotion of ERC by what the IRS believes are unscrupulous promoters. While initially perceived as mostly IRS bark, my firm has seen the “bite” by the IRS vis a vie a wave of new examinations.

In IR 2023-45 released on March 20, 2023 and linked HERE, the IRS spotlighted ERCs as its first entry to the 2013 Dirty Dozen list, following what the IRS believes to be blatant attempts by promoters to con ineligible businesses to claim the credit. Renewing several earlier alerts, the IRS highlighted alleged schemes from promoters who have been advertising on the radio and the internet touting refunds involving ERCs. These promotions, the IRS believes, can be based on inaccurate information related to eligibility for and computation of the credit.

In the announcement, the IRS warned taxpayers that it is stepping up enforcement action involving these ERC claims and businesses considering filing for these claims should be aware they are ultimately responsible for the accuracy of the information on their tax return. The IRS Small Business/Self-Employed division has trained auditors examining these types of claims, and the IRS Criminal Investigation Division is on the lookout for promoters of fraudulent claims for credits. The new IRS Commissioner further warned that “Businesses should be wary of advertised schemes and direct solicitations promising tax savings that are too good to be true," and that "they should listen to the advice of their trusted tax professional. Taxpayers should remember that they are always responsible for the information reported on their tax returns. Improperly claiming this credit could result in taxpayers having to repay the credit along with potential penalties and interest." The IRS reminds all taxpayers that the willful filing of false information and fraudulent tax forms can lead to serious civil and criminal penalties.

The IRS’ listing of ERC on its Dirty Dozen list is yet another indication that the IRS is intent on fulfilling its enforcement promises to ferret out perceived abuses of ERC.

If you have any questions about ERC, the IRS’ examination of ERC, or any other tax-controversy-related topic, please do not hesitate to contact me at adaddino@meadowscollier.com or (214) 749-2464.