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Dangers of ERC Fraud & the Benefits of the Voluntary Disclosure Program

February 28th, 2024 | 6 min. read

By Bryan Cremeen

When COVID hit, a lot of businesses took advantage of government programs that were designed to protect them from lockdowns. The ERC (Employee Retention Credit) was one of those programs that encouraged businesses to keep their employees on payroll.

Unfortunately, the government has since halted ERC payments. A lot of this is due to the overwhelming amount of fraud in people claiming the credit. 

Some fraud is done intentionally by business owners, but a large portion is the fault of predatory ERC services. They reach out to business owners and claim they can obtain the credit without knowing any important details about the business’s eligibility.

Luckily, if you act quickly, you can elect to be part of the IRS’s Voluntary Disclosure Program and fix your situation by March 22, 2024.

CSI Accounting & Payroll has closely followed tax credits for small businesses for over 50 years, and we helped many of our clients obtain the ERC during COVID. We’ve heard a lot of concerns about ERC fraud, including:

  • What happens if the government audits my ERC claim?
  • How can I get back in good standing with the IRS?
  • Can I still claim the ERC? Should I?

Blog - Dangers of ERC Fraud & the Benefits of the Voluntary Disclosure Program

What Happens if the Government Audits an ERC Claim

There are no statistics on ERC fraud, but we’ve heard that an estimated 80 percent of claims are fraudulent. This may be why the government stopped all payments of ERC funds on September 19, 2023 – even for retroactively claimed quarters.

You can learn more about fraudulent ERC services here.

When the government audits your ERC claim, is it a full-blown audit of your business, or is it just an audit of the claim? It can be both. The government will start by auditing your claim, but if they find other suspicious details in the process, they can investigate more of your business.

If you were roped in by a predatory ERC service, the IRS will mostly focus on seeking criminal charges for them. 

For you, they mainly want to figure out if you were just negligent or if you had criminal intent. That could be the difference between large penalties and fines (maximum $100,000) and jail time (maximum five years in prison).

How to Get Back in Good Standing With the IRS

The IRS has been actively sending notices to businesses that worked with ERC services. The letters say that if the business owner feels their ERC claim may have been done fraudulently or incorrectly, they can choose to amend it through the Voluntary Disclosure Program

This repayment program from the IRS is a rare opportunity, and it indicates that this is being taken very seriously. The funds are due back to the IRS by March 22, 2024. 

If it’s before the deadline, we can help you correct the fraudulent or incorrect filings and make sure you repay the amounts you received. However, if you’re charged, you’ll need a tax attorney.

How You Can Still Claim the ERC

For a while now, small businesses have been able to claim the ERC for certain prior quarters.

You can still file the claim on your own or with the help of a trusted service like CSI Accounting & Payroll, but no funds are currently being distributed by the government. That can change at any point, though!

And no worries – if we already helped you get your ERC, you can trust that you’re in good hands and won’t be found guilty of criminal intent.

Our final word of advice? Buyer beware. Predatory ERC services are still out there. Avoid services that actively reach out to you and claim they can get the ERC for you without knowing your eligibility. That’s red flags all around!

Claim Credits With Confidence!

If you aren’t sure about your accountant or ERC service’s ability to find and claim the right credits for your business, it may be time to check out a year-round accounting service, such as monthly accounting.

If that interests you, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:

Not ready to talk? That’s okay! First, learn more about what it’s like to work with CSI by clicking the image below:

Bryan Cremeen

Bryan joined CSI Accounting in 2019. He joined the team after CSI purchased his accounting firm, AccountSource LLC, which he had owned since 2005. He graduated from St. Cloud State in 2001 with a Bachelor's Degree in Accounting and has been an Enrolled Agent since 2010. Before owning his own accounting practice, Bryan had worked at the State of MN handling financial reporting and had been in private industry as a Controller. His primary responsibilities include overseeing the accounting department and making sure clients are receiving quality service. Fun Fact: Bryan has played soccer since the age of 4. He still plays soccer year round through various adult leagues and is an avid supporter of the Minnesota United MLS soccer team. COYL!!! (Come on, you Loons!!!)