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IRS Adds Employee Retention Credit Claims to its 2023 Dirty Dozen Tax Scam List

by | Sep 19, 2023 | IRS, Tax Audits |

In a further warning to individuals and businesses who may be tempted by too-good-to-be-true marketing, the Internal Revenue Service added the widely-circulating promoter claims involving Employee Retention Credits (ERCs) to its annual list of Dirty Dozen tax scams.

The IRS spotlighted Employee Retention Credits following blatant attempts by promoters to con ineligible people to claim the credit. Renewing several earlier alerts, the IRS highlighted schemes from promoters who have been blasting ads on the radio and the internet touting refunds involving ERCs. These promotions can be based on inaccurate information related to eligibility for and computation of the credit.

The IRS is stepping up enforcement action involving these claims.  Taxpayers considering claiming an ERC 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 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. Third-party promoters of the ERC often don’t accurately explain eligibility for and computation of the credit. They may make broad arguments suggesting that all employers are eligible without evaluating an employer’s individual circumstances. For example, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021, but these third-party promoters fail to explain this limitation.

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