The IRS turned up the heat on its scrutiny of the Employee Retention Credit (ERC) by listing some promoters of ERC as the first on their annual “Dirty Dozen” list of tax scams. In their March 20th press release, the IRS notes that they are “stepping up enforcement action involving these ERC claims,” and quoted the new IRS Commissioner, Danny Werfel, as saying, “The aggressive marketing of these credits is deeply troubling and a major concern for the IRS.” The IRS has continued to reiterate its warnings, including a Tax Tip on April 4, 2023, in which they note, “This is a valuable credit for those who qualify but claiming it improperly could result in taxpayers having to repay the credit along with potential penalties and interest.”
Stolen ERC Checks
Somewhat distinct from these warnings against improper ERC claims, we are learning of a new form of fraud related to the ERC: cashing stolen ERC checks. Recently, Experian Employer Services worked with the IRS to discover that their client’s delayed ERC refund check had, in fact, already been cashed. Several months after our inquiry, the IRS provided a scanned copy of the cashed check on which the client was able to confirm a forged and misspelled endorsement signature on the back of the check. The IRS has a process for recovering the funds in this situation, and they explained in a letter, “If an unauthorized person cashed the check, it will take some time to issue a new one after you return the claim form because [the Bureau of Fiscal Service] must do a lengthy investigation.”
The stolen ERC checks scam appears to be more widespread than this individual instance. On April 4, 2023, two individuals were indicted on criminal charges in the United States District Court Eastern District of Michigan. Two defendants are accused of nine counts of conspiracy to commit mail and wire fraud and money laundering. According to court documents, “The purpose of the scheme and artifice to defraud was for the defendants to unlawfully divert and obtain Employee Retention Credit funds that had been lawfully disbursed to legitimate businesses by the IRS.” The defendants are accused of opening bank accounts to pose as the businesses to whom ERC checks were issued, altering the payee line on the Treasury checks, and forging the signatures of the legitimate business owners on the backs of those checks. The indictment notes that “As a result of their scheme, members of the conspiracy fraudulently obtained a total of more than $1,500,000 in ERC funds.”
In further ERC fraud news, Hawaii News Now featured a story quoting Bret Kressin, special agent in charge of the Seattle office with IRS Criminal Investigations, describing yet another scheme wherein “ghost tax preparers” convince small business owners to file amended returns with ERC claims and then abscond with the refunds. According to their article, IRS Criminal Investigations have launched 106 cases with nearly $1.2 billion in potentially fraudulent claims.