The Employee Retention Credit (“ERC”) was enacted by Congress to provide relief for businesses negatively impacted by the COVID-19 pandemic and provides significant financial benefits to those businesses (up to $26,000 for each qualifying employee). However, in its haste to get the funds out to businesses that needed help, Congress did not provide detailed eligibility rules nor a robust process to determine whether most applicants were, in fact, entitled to receive the money they were seeking. The priority was on getting the money out to businesses which ostensibly needed it quickly. However well-intentioned this approach was, the lure of “free money from the government” caused some business owners to apply knowing they did not really qualify for one reason or another and also brought out many scammers who aggressively marketed themselves as “ERC consultants” to innocent business owners struggling to recover from the impact of COVID-19 on their businesses. These “ERC consultants” touted both their alleged expertise in making ERC claims and that any fees they charged were contingent on whether ERC benefits were received from IRS in apparent flagrant violation of Circular 230. The result was that, in the last year, the IRS was deluged with well over 1 million ERC claims despite the last affected tax period (the third quarter of 2021) having ended over two years ago. IRS now suspects that a significant number of these claims were fraudulent and had already taken a number of steps to try to stem the tide of such claims, starting in March 2023 when IRS listed fraudulent ERC claims as the top abusive tax scheme in its 2023 “Dirty Dozen” list and later, in September, when IRS announced a moratorium on processing any new ERC claims until “at least December 31, 2023,” which is still in effect.
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