ERC Fraud FAQs

Facing allegations of Employee Retention Credit (ERC) fraud can be daunting and filled with legal complexities. At Candice Fields Law, PC, we often encounter a range of questions from businesses and individuals navigating these challenges. Here, we address some of the most common queries to help you understand your situation and the steps you can take.

What is ERC Fraud?

ERC fraud involves intentionally making false claims or misrepresentations to obtain the Employee Retention Credit (ERC) under the CARES Act. This can include inflating employee numbers, falsifying payroll records, or misrepresenting the impact of COVID-19 on business operations.

How Do I Know if I'm Under Investigation for ERC Fraud?

Signs of an ERC fraud investigation include receiving an audit notice from the IRS, requests for extensive documentation related to your ERC claims, or unexpected visits from IRS agents. If you receive any of these indications, it’s crucial to seek legal advice immediately.

What Should I Do if I Receive an IRS Audit Notice?

If you receive an IRS audit notice, respond promptly and consult with an experienced ERC fraud defense lawyer. Gather and organize all relevant documents and avoid making any false statements or altering records. Professional legal guidance is essential in navigating the audit process.

Can I Go to Jail for ERC Fraud?

Yes, if convicted of ERC fraud, you can face significant legal penalties, including imprisonment. The severity of the penalties depends on the extent of the fraud and other factors. It’s essential to have a robust legal defense to mitigate these risks.

How Can an ERC Fraud Defense Lawyer Help Me?

An ERC fraud defense lawyer can help by reviewing your documentation, developing a strategic defense plan, representing you in communications with the IRS, and negotiating settlements. They provide the expertise and advocacy needed to protect your rights and achieve a favorable outcome.

What Are the Possible Penalties for ERC Fraud?

Penalties for ERC fraud can include repayment of the fraudulently obtained funds, substantial fines, and imprisonment. Additionally, there may be civil penalties and long-term damage to your personal and professional reputation.

Can I Settle an ERC Fraud Case Out of Court?

In some cases, it is possible to negotiate a settlement with the IRS to resolve an ERC fraud case. An experienced defense lawyer can help negotiate terms that may reduce penalties and avoid more severe consequences.

How Long Does an ERC Fraud Investigation Take?

The duration of an ERC fraud investigation can vary depending on the complexity of the case and the responsiveness of the parties involved. It can take several months to over a year to reach a resolution. Working with a knowledgeable defense lawyer can help expedite the process

What should I do if the IRS is auditing my business’ employee retention credits?

If the IRS is auditing your ERC claims, it is crucial to act promptly and meticulously. Gather all relevant documentation related to your ERC claims, including payroll records, tax filings, and any proof of eligibility, such as business operations records during the pandemic. It is highly recommended that you seek legal representation experienced in dealing with IRS audits to ensure your rights are protected throughout the process and help present your case effectively.

What does it mean if IRS Criminal Investigation (CI) looks into my business’ employee retention credits?

If IRS CI is involved, it indicates a serious inquiry that could lead to criminal charges. This division of the IRS deals with potential tax fraud and other financial crimes. Immediate action is essential: engage a criminal defense attorney with specific tax-related experience. They can communicate on your behalf, manage the exchange of information, and strategize a defense based on the intricacies of tax law and the specifics of your case.

What should I do if my business hired a third party to claim the ERC?

If a third party claimed the ERC on behalf of your business, you need to verify the accuracy and legitimacy of the claims they made. Request detailed records and documentation from the third party and review them thoroughly. Contact an ERC lawyer if discrepancies are found or if you suspect that the third party may have misinterpreted the rules or committed fraud. Your attorney can assess the situation and advise on potential liability and steps to rectify the situation.

What are my options if my business improperly claimed the ERC?

If your business has mistakenly or improperly claimed the ERC, there are several steps you can take to mitigate potential penalties:

• Voluntary Correction: Amend your tax returns to correct the error before the IRS initiates an audit or investigation.
• Cooperation: If an audit or investigation is already underway, cooperating fully with the IRS can sometimes result in reduced penalties.
• Legal Defense: Constructing a strong legal defense is crucial in cases where penalties are severe or if criminal charges are possible. This might involve demonstrating a lack of intent to defraud or reliance on professional advice.

How should I prepare for potential litigation regarding ERC fraud?

Preparing for potential litigation involves several critical steps:

• Document Retention: Secure all documentation that was used to file for the ERC. This includes detailed payroll records, financial statements, correspondence with third-party service providers, and any communications with government agencies regarding COVID-19 restrictions.
• Legal Representation: Engage with a law firm that has experience in tax law and criminal defense. An attorney from such a firm can provide invaluable advice on litigation strategy and will represent your interests in court.
• Internal Review: Conduct an internal review of your ERC claim process to identify how the claim was prepared and on what basis the credits were calculated. This will help clarify whether any discrepancies were due to misunderstandings or errors.

Can the IRS impose penalties if they find discrepancies in my ERC claim?

Yes, the IRS can impose penalties if discrepancies are found in your ERC claims. These can range from monetary fines to more severe penalties if fraud is suspected. The severity of the penalties often depends on whether the discrepancies were due to negligence or intentional misconduct. In cases where fraud is not evident, penalties might be reduced if you can demonstrate that the errors were due to a reasonable cause.

What are the long-term impacts of an ERC fraud allegation on my business?

The long-term impacts of an ERC fraud allegation can be significant:

• Reputational Damage: Allegations of fraud can harm your business’s reputation, potentially leading to a loss of client trust and difficulty in securing future business opportunities.
• Financial Strain: Legal fees, potential fines, and the requirement to pay back disallowed credits can create financial strain.
• Operational Disruptions: Dealing with investigations and potential litigation can divert your focus from day-to-day business operations and long-term strategic goals.

How can I mitigate the damage if my business is found guilty of ERC fraud?

Mitigating damage after a finding of guilt involves several approaches:

• Negotiating Settlements: Your attorney can negotiate with the IRS or other authorities to reach a settlement that may include payment plans for fines and repayments, which can help manage financial impacts.
• Public Relations Strategy: A strong PR strategy can help rehabilitate your business’s public image and restore trust with your customers and stakeholders.
• Compliance Improvements: Enhancing internal control systems and providing ongoing compliance training for staff can demonstrate a commitment to future compliance, mitigate damage, and help prevent future legal issues.

What Are My Rights During an ERC Audit?

During an ERC audit, you have the right to be represented by a lawyer, to be informed of the audit process, to receive a copy of the audit findings, and to appeal the IRS's decisions. Knowing your rights can help protect you during the audit.

What Should I Avoid Saying to IRS Agents?

Avoid making false or misleading statements, admitting guilt, or providing incomplete information. Always consult with your lawyer before answering questions from IRS agents to ensure you do not unintentionally incriminate yourself.

How Can I Prepare for an ERC Audit?

To prepare for an ERC audit, gather all relevant documentation, organize your records, consult with an ERC fraud defense lawyer, and understand the specific areas the IRS will review. Being well-prepared can help you manage the audit more effectively.

What Happens If I Cannot Provide All the Requested Documentation?

If you cannot provide all the requested documentation, explain the reasons to the IRS and provide any alternative evidence that supports your claims. Your lawyer can help you navigate this situation and advise on the best course of action.

Can the IRS Audit Previous Years' ERC Claims?

Yes, the IRS can audit ERC claims from previous years within the statute of limitations, typically three years from the date the return was filed. In cases of suspected fraud, this period can be extended.

What Are Common Red Flags That Trigger an ERC Audit?

Common red flags include significant discrepancies in payroll records, unusually high ERC claims compared to the business's size, inconsistent financial statements, and prior issues with tax compliance. Ensuring accuracy in your filings can help avoid triggering an audit.

Can I Appeal the Results of an ERC Audit?

Yes, you have the right to appeal the results of an ERC audit if you disagree with the findings. Your lawyer can guide you through the appeals process, including preparing the necessary documentation and representing you in hearings.

What Is the Difference Between an ERC Audit and an Investigation?

An ERC audit is a routine review of your claims to ensure compliance, while an ERC investigation typically involves suspected fraud or misconduct and can lead to criminal charges. Both require careful handling, but an investigation is generally more serious.

How Long Do I Have to Respond to an IRS Audit Notice?

The timeframe for responding to an IRS audit notice is usually specified in the notice itself. Adhering to this deadline is crucial to avoid penalties and additional scrutiny. Consulting with a lawyer promptly can help you meet these deadlines.

What Are the Chances of Successfully Defending Against ERC Fraud Charges?

The chances of successfully defending against ERC fraud charges depend on the specifics of your case, including the evidence against you and the quality of your defense. An experienced lawyer can assess your situation and develop a strong defense strategy.

Contact Us for Experienced Legal Advice

Don't hesitate to reach out if you have more questions or need assistance with an ERC fraud investigation. We are here to protect your rights and help you navigate this complex process.