ERC: Is the IRS Trying to Ski Uphill?

By Joel N. Crouch on March 8, 2023

One of my favorite things to do is snow ski. I’ve been doing it for a long time and try to go on a couple of ski trips every year. In fact, I just returned from a trip with a couple of friends including my colleague Alan Davis, who is not only a great estate planning attorney, he is also an excellent skier. But I digress.

The latest fad in snow skiing is uphill skiing. Not cross country skiing, UPHILL SKIING. For a small price, a ski resort will sell you a pass, not to ride the ski lift, but to ski uphill on designated slopes and then turn around and ski down. For those of you who think I am kidding, here is the link to the Aspen website discussing uphill skiing. It is a probably a great workout, but I am a big believer in using gravity, not fighting it. Movie ski chases like this one from a James Bond film would not be the same if 007 and his pursuers were trying to ski uphill and had to stop every 20 feet to catch their breath. It would be similar to the infamous George vs. The Geriatric Bike Gang chase from Seinfeld.

Uphill skiing was brought to mind when I saw on March 7th the IRS released its third warning in six months regarding fraud and abuse in the Employee Retention Credit (ERC) program. We’ve discussed ERC in prior blog posts and IR-2023-40 renews the IRS warning urging people “to carefully review the Employee Retention Credit (ERC) guidelines before trying to claim the credit as promoters continue pushing ineligible people to file”.

According to the IRS release,

“The IRS has been warning about this scheme since last fall, but there continues to be attempts to claim the ERC during the 2023 tax filing season. Tax professionals note they continue to be pressured by people wanting to claim credits improperly. The IRS Office of Professional Responsibility is working on additional guidance for the tax professional community that will be available in the near future.

People and businesses can avoid this scheme, by not filing improper claims in the first place. If the business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction.

Businesses should be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.”

The release then asks anyone who has information regarding suspicious ERC claims to complete and submit a Form 14242, Report Suspected Abusive Tax Promotions or Preparers and any supporting materials to the IRS Lead Development Center.

Although three warnings in six months sends a message that the IRS has been overwhelmed by ERC filings and may be skiing uphill in the battle to combat fraud and abuse in the program, I will repeat my final statement from my prior blog posts: Anyone involved in ERC filings, whether as a taxpayer, promoter or return preparer, should take note and make sure all T’s are crossed and all I’s are dotted.

If you have any tax-related questions please feel free to contact me at jcrouch@meadowscollier.com.