Don’t Face Employee Retention Credit Fraud Alone — Consult Our Federal Criminal Defense Attorneys Today
If you’re facing potential charges for Employee Retention Credit (ERC) Fraud, the stakes couldn’t be higher. Failing to secure competent representation can result in severe penalties, including substantial fines and even imprisonment. At Cofer Luster Criminal Defense Lawyers, we focus on federal criminal defense cases, including ERC Fraud. Don’t take on the federal government without an experienced lawyer by your side. Call us today at (682) 777-3336 or visit us online to schedule your initial consultation and discuss your case.
WE PROVIDE FREE CONSULTATIONS CALL US TODAY
ERC Fraud: The Basics
The Employee Retention Credit (ERC) is designed to help businesses keep their employees on the payroll during difficult times, primarily caused by the COVID-19 pandemic. While the intentions behind this federal policy are good, the complexity and specifics of the rules make it ripe for misunderstandings and potential abuse. Below, we’ll discuss how someone might inadvertently or intentionally commit fraud. We’ll explore common misconceptions and scams related to the program, and what legal consequences could follow.
Who Can File For ERC?
The filing process for ERC varies based on the type of business. Sole proprietors, corporate officials, and partners in a partnership are usually authorized to file. Additionally, a third-party payor like a PEO or CPEO can also file the claim if they filed your original return. Importantly, you must have filed an original employment tax return and issued Forms W-2 to be eligible to claim this credit.
Understanding How To Legitimately Claim ERC
Who Can File And How To File
A business that did not initially claim the ERC can do so by filing an amended employment tax return. Different types of business entities have different authorized personnel who can sign the claim.
Deadline For Filing
The deadline for claiming the ERC for the 2020 tax periods is April 15, 2024, and for 2021 tax periods, it is April 15, 2025.
Implications For Tax Returns
Claiming the ERC has implications on your income tax return. Specifically, you must reduce your deduction for wages by the amount of the credit claimed for that tax period. This might require you to file an amended income tax return.
The IRS Steps Up Scrutiny Of ERC Claims
Recently, the IRS added ERC scams to its most common tax fraud schemes. The agency is increasing its compliance work and implementing new procedures to catch and prosecute fraudulent claims. With the distancing from the pandemic era, the percentage of legitimate claims is reportedly declining. Instead, there is an uptick in questionable claims, spurred on by aggressive and misleading marketing strategies.
The Temptation Of Quick Money: Why ERC Scams Are Attractive
While $26,000 per employee can seem like a lifeline for struggling businesses, this significant sum also makes it an attractive target for scammers. Advertisements encouraging businesses to claim the ERC—whether they qualify or not—are proliferating on radio, television, and social media platforms. Some of these ads are crafted to resemble official government notifications, increasing the risk of individuals falling for these scams.
Red Flags: Recognizing Fraudulent ERC Promotions
The IRS also warns of unsolicited calls, emails, or texts from unknown sources pushing individuals to apply for the ERC. Often, these promoters claim they can determine your eligibility within a matter of minutes or charge large upfront fees for their services. Other warning signs include:
• Fees calculated as a percentage of the ERC amount claimed
• Assurances of eligibility without any detailed tax assessment
• Pressure to submit claims based on the false premise that there’s “nothing to lose”
Other Fraudulent Signs Of ERC Fraud
Eligibility Confusion
The ERC has very specific eligibility criteria, such as the need for a business to have sustained a full or partial suspension of operations due to government orders related to Covid-19, or a significant decline in gross receipts. Some businesses, unfortunately, get swayed by false promoters claiming that any employer can claim the ERC. This can lead to fraudulent claims.
Misinterpreting Government Orders
To be eligible for the ERC, your business should have been subject to government orders that resulted in a full or partial suspension of operations. Some businesses, however, may misinterpret what counts as a “government order” and proceed to claim the ERC incorrectly. For instance, recommendations or bulletins from government authorities do not qualify as orders, but some businesses might make that mistake.
Exaggerating Supply Chain Issues
The IRS has stated that a supply chain issue alone does not make a business eligible for the ERC. However, some businesses could misrepresent their situations, claiming that a supply chain issue led to a suspension of their operations. This could be a form of fraud if these businesses knowingly provide false information.
Falsifying Decline In Gross Receipts
A significant decline in gross receipts during specific periods is one way a business can qualify for the ERC. There’s a potential for fraud here if a business manipulates its records to show a decline that didn’t occur or exaggerates the extent of the decline.
Misrepresenting As A Recovery Startup Business
A recovery startup business can only claim the ERC for the third and fourth quarters of 2021, and there are specific requirements for what constitutes a “recovery startup business.” Businesses that misrepresent themselves to meet these criteria could be engaging in fraud.
Filing Without Original Employment Tax Return
Claims for refund will not be processed if an original employment tax return has not been filed. Filing an ERC claim without an original return could be construed as fraudulent behavior.
Blatantly Ignoring W-2 Requirements
The IRS will not process ERC claims if the claim for a refund is filed after Forms W-2 were due and if you did not file these forms. Neglecting this aspect and proceeding with the claim could be seen as an intentional act of fraud.
Recordkeeping And Documentation
Good recordkeeping is not just good business practice; it’s a requirement for claiming the ERC. Law enforcement agencies like the IRS will verify the claims made by businesses, and any discrepancy could lead to fraud charges.
WE PROVIDE FREE CONSULTATIONS CALL US TODAY
Understanding Federal Tax Evasion And Fraud Laws: 26 U.S.C. § 7201 And 26 U.S.C. § 7206
Section 7201: Attempt To Evade Or Defeat Tax
What The Law Says
Section 7201 of Title 26 of the U.S. Code deals with attempts to evade or defeat any federal tax. The law states that anyone who willfully tries to evade or beat any tax or its payment is committing a felony.
Penalties
Upon conviction, an individual can face a fine of up to $100,000, while corporations can be fined up to $500,000. Additionally, the guilty party may face a prison term of up to 5 years. These penalties are besides any other penalties that may apply under other laws.
What Constitutes A Violation
Violations typically include deliberately underreporting income, claiming false deductions, or hiding money and investments. For charges under this section to stick, the prosecution must prove that the act was willful and aimed at evading a federal tax.
Section 7206: Fraud And False Statements
What The Law Says
Section 7206 outlines several forms of fraud and false statements that can lead to criminal charges. These include willfully making a false return, statement, or other documents under penalties of perjury; aiding in the preparation of a fraudulent document; falsifying or fraudulently executing any required internal revenue bond, permit, or entry, among other fraudulent activities.
Penalties
For offenses under this section, an individual or corporation can be fined up to $100,000 or $500,000, respectively. Furthermore, they may also face up to 3 years in prison. This is in addition to the costs of prosecution that the convicted party may have to bear.
What Constitutes A Violation
Violations under this section can vary and include deliberately providing false information on your tax return, advising someone else to do so, or even falsifying documents and records related to someone’s estate for tax purposes.
Law Enforcement Agencies Involved
Enforcement of these tax-related federal laws primarily falls under the jurisdiction of the IRS. They work in conjunction with the Department of Justice to investigate and prosecute cases of suspected tax evasion and fraud.
Potential Defenses To Employee Retention Credit (ERC) Fraud Charges
Lack Of Intent To Defraud
One of the core elements in a fraud case is the intent to deceive or defraud. If you can demonstrate that you did not willfully or intentionally submit false information to claim the ERC, it could serve as a strong defense. Lack of intent could be shown through various means such as misunderstanding the complex rules of the ERC, honest mathematical errors, or reliance on incorrect professional guidance.
Good Faith Reliance On Professional Guidance
The complexities of tax law and financial assistance programs, like the ERC, often necessitate relying on accountants, lawyers, or financial advisors. If you relied in good faith on professional guidance that later turns out to be incorrect, this could be a defense. For this defense to work, you would likely need to show that you provided all necessary information to the professional and that you had no reason to doubt their professional understanding.
Ambiguities In Law Or Guidance
The ERC has gone through multiple changes since its inception, making it a complex program with various criteria for eligibility and reporting. If you can demonstrate that the guidance or law was unclear or ambiguous, and that you made a reasonable interpretation of that law, this could potentially be a defense to fraud charges.
Corrective Action
If you discovered that you’ve claimed the ERC incorrectly and took swift action to correct the mistake, it could be used in your defense. This could include actions like amending tax returns, repaying the ERC amount, or immediately contacting authorities to rectify the error. Prompt corrective action might show a lack of criminal intent.
Insufficient Evidence
The burden of proof in a criminal case rests on the prosecution. They must prove every element of the crime beyond a reasonable doubt. If the prosecution cannot provide sufficient evidence to meet this high standard, then the charges against you should be dropped or you should be acquitted.
Involuntary Compliance With Third-Party Misconduct
In some cases, businesses might be implicated in fraud due to the actions of a third party, such as an employee or a contracted financial advisor, who submits false information without the business owner’s knowledge. Demonstrating that you were unaware of the third party’s misconduct could be a viable defense.
ERC Fraud Defense Attorneys
Businesses that knowingly or unknowingly submit false information when claiming the ERC could find themselves facing severe legal consequences. If you’re concerned about your situation, consulting with legal professionals, especially those who focus on federal criminal defense, can provide you with the guidance you need.
Every minute counts towards building a robust defense that can mitigate the impact of these serious charges on your life. An experienced federal criminal defense lawyer from Cofer Luster Criminal Defense Lawyers, can help you navigate the intricacies of federal laws and regulations to strategize the strongest course of action. Reach out to our ERC fraud defense lawyers now by calling (682) 777-3336 or visit us online to schedule a risk-free consultation.
