California Criminal Defense Lawyer Blog
The Covid-19 pandemic ushered in government benefit programs aimed at relieving the economic burdens the pandemic and the resulting lockdowns caused to individuals and businesses. Among those benefits was the Employee Retention Credit (ERC). Individuals and employers are being warned that making false claims for an ERC credit will and has resulted in criminal charges.
The ERC program was created to help small businesses reduce the employment tax they owed as a set-off for partial or full suspension of their business due to Covid-19. The credit is tied to employee wages paid by the business. The ERC program is complex and requires that a business’ eligibility fall within certain guidelines.
The program has been plagued with fraud and scams. Small businesses and individuals have fraudulently claimed this credit while others have fallen prey, wittingly or unwittingly, to unscrupulous enterprises who aggressively advertise as “advisors” who will assist employers, sole proprietors, and independent contractors to claim the ERC. In other cases, individuals have made false claims for nonexistent businesses. According to the IRS, thousands of ERC claims have been referred for audit and 252 criminal investigations into possible fraudulent ERC claims have been initiated.
One tax preparation company promoted their services to individuals who operated as sole proprietors, single member LLCs, or independent contractors. The scheme was to convert these single member businesses to S Corporations so that they could claim the credit and submitted forms to the IRS for these companies. The submissions to the IRS for the credits were largely fraudulent, claiming employees that were not actually employees, claiming the maximum ERC even if wages were not paid to support the claim, claiming sick and family leave credits without any qualifying events, and other false claims.
The tax preparation company has been charged with criminal conspiracy to defraud the Unites States, wire fraud, and filing false tax returns. Whether the individuals who utilized these services will be charged remains to be seen, but that is a possibility if the government has evidence that they knowingly participated in the fraud.
In another case, a Hollywood man was indicted on charges that he filed false tax returns claiming over $65 million in ERC credits. He created a non-existent farm transportation business; he just made up the company on paper. He received a portion of the illegally gained credits before authorities caught on. He faces 17 counts and a maximum five years in federal prison if convicted.
The IRS is warning employers and individuals of ERC scam promotions. You may have heard them advertised. The promotion will often claim that many who qualify for these credits have not applied and invite those who think they might be eligible to contact them to see if they qualify. The IRS warns that these promoters may lie about eligibility and entice an ineligible business or individual to apply for the credit. In fact, the IRS has issued a moratorium on all new claims for the rest of 2023 due to the abuse of the ERC program. In the meantime, employers and individuals should avoid ERC promoters and consult with a qualified attorney if they believe they might be eligible for this credit.
Orange County criminal defense attorney William Weinberg is available for a free consultation to discuss your legal matter. You may contact him at his Irvine office at 949-474-8008 or by emailing him at bill@williamweinberg.com.