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The IRS Gets Serious About ERC Abuse

By Joel N. Crouch on February 21, 2023
In a prior blog post, HERE, I discussed how both the IRS Examination Division and the IRS Criminal Investigation Division were starting to focus on Employee Retention Credits (ERC) and ERC promoters. In a recent interview, an IRS CID official said that there have already been 10 or 11 ERC indictments.

On February 1st, two individuals in Utah and their company were charged with conspiracy, filing false tax returns and wire fraud for allegedly running an ERC claim mill. According to the indictment, Zachary Bassett, 39, of Provo, Mason Warr, 37, of Vineyard and COS Accounting & Tax LLC, dba 1099 Tax Pros located in Provo, participated in a fraudulent tax scheme to seek COVID-related relief funds by preparing and submitting more than one thousand tax forms to the IRS, claiming in excess of $11 million in false and fraudulent ERC and sick and family leave wage credits for clients of COS Accounting. The government is also seeking forfeiture of any property constituting or derived from the proceeds traceable to the scheme to defraud.

In a related note, on February 13th, the National Association of Tax Professionals sent a letter to IRS Acting Commissioner Douglas O’Donnell, expressing concerns regarding ERC and asking for guidance for its members’ potential exposure to penalties-not for filing ERC claims, but instead for filing amended income tax returns related to ERC credit. In its letter to the IRS, the NATP is requesting guidance regarding the following:
 
  1. What is our due diligence in preparing the affected income tax return when we did not prepare the ERC filings?
  2. What is our due diligence if we do not agree that the client qualified for ERC or discover improper ERC filings?
  3. What is our responsibility when relying on what the IRS refers to as “Third parties,”, not tax professionals, for ERC filings?
  4. What questions should our members be asking their clients?
  5. What is the tax professional’s exposure to Circular 230, or even Title 26, tax preparer penalties?
What does this all mean? Anyone involved in ERC filings, whether as a taxpayer, promoter or return preparer, should take note and make sure all T’s are crossed and all I’s are dotted.

If you have any tax-related questions please feel free to contact me at jcrouch@meadowscollier.com.