IRS Warns Of Fraudulent Promotion of COVID Employee Retention Credits


As promoters continue to blanket businesses with promises to secure Employee Retention Credits (“ERCs”), the Internal Revenue Service (“IRS”) is warning businesses to review carefully the guidelines before trying to claim the credit before filing.

The IRS warns that the IRS and tax professionals continue to see third party promoters that charge large upfront fees or a fee contingent on the amount of the refund aggressively promoting these ERC schemes on radio, online and through telemarketing. Frequently the promoters may not inform taxpayers that wage deductions claimed on the business’ federal income tax return must be reduced by the amount of the credit.

“While this is a legitimate credit that has provided a financial lifeline to millions of businesses, there continue to be promoters who aggressively mislead people and businesses into thinking they can claim these credits,” said Acting IRS Commissioner Doug O’Donnell. “Anyone who is considering claiming this credit needs to carefully review the guidelines. If the tax professional they’re using raises questions about the accuracy of the Employee Retention Credit claim, people should listen to their advice. The IRS is actively auditing and conducting criminal investigations related to these false claims. People need to think twice before claiming this.”

The IRS has been warning about this scheme since last fall, but there continue to be attempts to claim the ERC during the 2023 tax filing season. Tax professionals note they continue to be pressured by people wanting to claim credits improperly. The IRS Office of Professional Responsibility is working on additional guidance for the tax professional community that will be available in the near future.

People and businesses can avoid this scheme, and by not filing improper claims in the first place. If the business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction.

Businesses should be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.

What is the ERC?

The ERC is a refundable tax credit enacted as part of COVID relief designed for businesses who continued paying employees while shut down due to the COVID-19 pandemic or who had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021. Eligible taxpayers can claim the ERC on an original or amended employment tax return for a period within those dates.

To be eligible for the ERC, employers must have:

As a reminder, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021. Additionally, for any quarter, eligible employers cannot claim the ERC on wages that were reported as payroll costs in obtaining PPP loan forgiveness or that were used to claim certain other tax credits.

To report tax-related illegal activities relating to ERC claims, submit by fax or mail a completed Form 14242, Report Suspected Abusive Tax Promotions or Preparers and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations.

Mail: Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Road
Laguna Niguel, California 92677-3405
Fax: 877-477-9135

Employers should also report instances of fraud and IRS-related phishing attempts to the IRS at phishing@irs.gov and Treasury Inspector General for Tax Administration at 800-366-4484.

Go to IRS.gov to learn more about eligibility requirements and how to claim the Employee Retention Credit:

Other information and resources also include:

The bottom line of these and other IRS warnings is that taxpayers improperly claiming these credits risks penalties and other liabilities even if they act in good faith reliance on assurances by a promoter or other party. Consequently, any party filing for these credits should independently confirm eligibility. Additionally, taxpayers should get and retain copies of any opinions, advice or other analysis and authorities relied upon in case of a challenge.

For More Information

We hope this update is helpful. For more information about these or other health or other legal, management or public policy developments, please contact the author Cynthia Marcotte Stamer via e-mail or via telephone at (214) 452 -8297. 

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About the Author

Recognized by her peers as a Martindale-Hubble “AV-Preeminent” (Top 1%) and “Top Rated Lawyer” with special recognition LexisNexis® Martindale-Hubbell® as “LEGAL LEADER™ Texas Top Rated Lawyer” in Health Care Law and Labor and Employment Law; as among the “Best Lawyers In Dallas” for her work in the fields of “Labor & Employment,” “Tax: ERISA & Employee Benefits,” “Health Care” and “Business and Commercial Law” by D Magazine, Cynthia Marcotte Stamer is a practicing attorney board certified in labor and employment law by the Texas Board of Legal Specialization and management consultant, author, public policy advocate and lecturer widely known for 35 plus years of health industry and other management work, public policy leadership and advocacy, coaching, teachings, and publications.

A Fellow in the American College of Employee Benefit Counsel, Co-Chair of the American Bar Association (“ABA”) International Section Life Sciences and Health Committee and Vice-Chair Elect of its International Employment Law Committee, Chair-Elect of the ABA TIPS Section Medicine & Law Committee, Past Chair of the ABA Managed Care & Insurance Interest Group, Scribe for the ABA JCEB Annual Agency Meeting with HHS-OCR, past chair of the ABA RPTE Employee Benefits & Other Compensation Group and current co-Chair of its Welfare Benefit Committee, and Chair of the ABA Intellectual Property Section Law Practice Management Committee, Ms. Stamer is most widely recognized for her decades of pragmatic, leading-edge work, scholarship and thought leadership on heath benefit and other healthcare and life science, managed care and insurance and other workforce and staffing, employee benefits, safety, contracting, quality assurance, compliance and risk management, and other legal, public policy and operational concerns in the healthcare and life sciences, employee benefits, managed care and insurance, technology and other related industries. At her career, she has worked extensively with healthcare and other employers to manage discrimination and other workplace and employee benefit compliance and risks. She speaks and publishes extensively on these and other related compliance issues.

Ms. Stamer’s work throughout her career has focused heavily on working with health care and managed care, life sciences, health and other employee benefit plan, insurance and financial services and other public and private organizations and their technology, data, and other service providers and advisors domestically and internationally with legal and operational compliance and risk management, performance and workforce management, regulatory and public policy and other legal and operational concerns. Scribe for the ABA JCEB Annual Meeting with the HHS Office of Civil Rights, her experience includes extensive involvement throughout her career in advising health care and life sciences and other clients about preventing, investigating and defending EEOC, DOJ, OFCCP and other Civil Rights Act, Section 1557 and other HHS, HUD, banking, and other federal and state discrimination investigations, audits, lawsuits and other enforcement actions as well as advocacy before Congress and regulators regarding federal and state equal opportunity, equity and other laws. 

For more information about Ms. Stamer or her health industry and other experience and involvements, see www.cynthiastamer.com or contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here. 

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