The Internal Revenue Service (IRS) is continuing to caution employers about claiming the Employee Retention Tax Credit (ERTC), noting that there have been aggressive and unlawful tactics by various ERC filing services. The IRS is aware that a number of these providers are persuading ineligible businesses to seek and obtain the ERC credit. As a result of these unscrupulous business practices, the IRS has committed to “step up” enforcement action regarding ERTC claims. The IRS is expected to focus on employer eligibility, substantiation of financials underlying the eligibility determination and claim, and a review of any amended returns by the employer. Penalties range from 20% for errors in accuracy to 75% if the IRS detects fraud.
The statute for the ERTC permits civil action by the IRS for two years after the refund is issued. The statute of limitations for fraud or misrepresentation, however, extends to five years.