Promoters and tax advisors have extensively marketed the Employee Retention Tax Credit (ERTC) as a way for employers to reclaim Federal Insurance Contributions Act payroll taxes paid during the first two years of COVID-19. The rules governing ERTC claims are complex and nuanced, however, resulting in increased scrutiny by the Internal Revenue Service (IRS). Asserting that many employers have improperly claimed these heavily marketed ERTC refunds, the IRS released two announcements, one on September 14, 2023, and the other on October 19, 2023, that address ERTC claims. In conjunction with these announcements, the IRS has already named fraudulent ERTC claims as number one on its “Dirty Dozen” list for 2023.

Specifically, the IRS will now target erroneous ERTC claims with penalties and interest. If a case is deemed fraudulent, the IRS will investigate and may impose civil and criminal penalties. The IRS has also suspended ERTC refund claims and provided a new withdrawal process for potentially fraudulent claims.