Skip to Content

Beware of misleading ERC refund info—IRS cracking down on ERC fraud

Wondering what happened to your ERC refund? The IRS is reporting delays in sending out ERC checks due to a surge in ERC filing mistakes and ERC fraud. 

As you file taxes this year, beware of misinformation from aggressive marketers about the ERC program. Many tax representatives have been making misleading promises to win over small business owners. Use care in selecting your tax specialist. You may end up with mistakes that could delay your ERC refund, or worse, get you in trouble with the IRS.

While there isn’t much you can do about the slowdown in ERC refund processing, but you can be careful that you and your business don’t become an ERC fraud statistic. 

What is an ERC refund? 

An ERC refund is a claim your business makes for an Employee Retention Credit (ERC), part of a government relief program intended for business owners who retained W2 employees during the Covid-19 pandemic. Businesses have received up to $26,000 per W2 employee. While the credit is no longer available for future tax years, you can still claim it for 2020 and 2021. 

How can you claim an ERC refund? 

First, your business needs to have employees paid during 2020 and 2021. Your wages as a business owner are excluded. To qualify for the ERC refund, your business needs to meet certain thresholds for declines in gross receipts, which is different from profit, on a quarterly basis, versus 2019. Your business also needs to have been mandated by the government to shut down during specified periods. 

It is critical that you speak to a qualified tax representative about the calculations and qualifications for ERC to your business. It is easy to make mistakes that open you up to fraud and audits. Your tax representative should also be able to keep tabs on your ERC refund status.

Has the IRS stopped processing ERC refunds? 

Yes. In a September 14, 2023 press release, the IRS announced it was halting the processing of ERC claims“to protect taxpayers from scams.” It announced the stoppage would last through December 31st, at minimum, so that the IRS could “add more safeguards to prevent future abuse and protect businesses from predatory tactics.”

This does not mean that the IRS is shutting down the program, nor that the IRS is refusing to pay valid ERC claims that were already filed or will be filed in the future. We strongly recommend your business file a claim if your qualifications are valid so that you can get an ERC check.  

Why are ERC refunds delayed? 

Too many business owners have been targeted by misleading claims about the ERC refund program. Unqualified firms have been taking advantage of the stimulus’s complexity, soliciting taxpayers about this credit, and creating misconceptions about how to qualify. 

Can you get in trouble with an ERC claim? 

If your tax representative gives you poor advice, you may find yourself facing ERC fraud charges instead of an ERC check.

A common mistake is that these firms are applying the qualification that your business was mandated to shut down too liberally. If your ERC claim is audited, this misapplied qualification could create a problem. 

The IRS has indicated that if the credits have been based on improper qualifications, payback plus a 25% penalty could result. 

Will an ERC claim be audited? 

Making a genuine and properly qualified ERC refund claim does not increase the risk of an audit. That is why it is so important to speak to a qualified tax representative about making a valid ERC refund claim.  

Bernstein Financial Services, Inc. has helped guide small owners through the complexities of the tax code since 1959. We can make sure that your ERC claim is properly carried out to protect you from the risks of ERC fraud. We support you through the process and delays, keeping  your up to date on your ERC refund status. 

The consulting firms and tax representatives giving you the hard sell about applying for an ERC refund will rarely stay around to represent you in the event of an audit. That will never happen with us. If you have an ERC claim that gets audited, we work closely with the IRS to resolve issues in the most advantageous way for you.

If you have any questions about the ERC program, if you filed a claim and are worried about your ERC refund status, or if you are being audited for potential ERC fraud, give us a call.