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News: IRS Ramps Up Phase II of Fraudulent ERTC Claims and Warns Businesses of Aggressive ERC Marketers

Emerging Issues and News:

August 7, 2023

IRS Ramps Up Phase II of Fraudulent ERTC Claims and Warns Businesses of Aggressive ERC Marketers

The Internal Revenue Service has made substantial progress in its efforts to discover and overturn fraudulent ERC (Employee Retention Credit) claims. IRS Commissioner, Danny Werfer said the Agency is entering a new phase of scrutiny on questionable ERC claims, with dedicated staffing to investigate fraud.  IRS also continues to warn businesses of aggressive marketing by third-party ERC filers.

Deputy Commissioner of Enforcement Services, Douglas O’Donnell, spoke at a tax conference at NY University regarding the downfall that businesses may experience by using unqualified ERC preparation firms:

“These individuals who are being sold this notion that almost anyone can claim this credit by these mills—they are creating a lot of heartache for businesses because when we go out, if they’ve gotten a refund, we’re going to pull it back, and there’s going to be penalties and interest associated with it.

Those (preparers) that have gotten 25 percent of the refund as a fee for helping them, they’re gone. They’re not going to represent them.  It is drawing businesses into a trap, that they will then be claiming a credit that they are not entitled to.”

When properly claimed, the ERC is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were fully or partially suspended due to a government order or that had a significant decline in gross receipts during the eligibility periods (March 2020 to December 2021).

“The amount of misleading marketing around this credit is staggering, and it is creating an array of problems for tax professionals and the IRS while adding risk for businesses improperly claiming the credit,” Werfel said. “A terrible scenario is unfolding that hurts everyone involved — except the promoters.”

There are many legitimate ERC claims, along with qualified preparers, but how does a business identify and protect itself from being scammed by an ERC marketer.

What are the Warning Signs of Aggressive ERC Marketers:

  • Unsolicited calls or advertisements mentioning an “easy application process.”
  • Statements that the promoter or company can determine ERC eligibility within minutes
  • Large upfront fees to claim the credit
  • Fees based on a percentage of the refund amount of Employee Retention Credit claimed
  • Preparers refusing to sign the ERC return being filed by the business, exposing only the business who claimed the credit to investigation risk
  • Aggressive claims that the business qualifies for ERC before any discussion of the group’s tax situation or key criteria for credit
  • Leaving out key details. Third-party promoters of the ERC often don’t accurately explain eligibility requirements or how the credit is computed. They may make broad arguments suggesting that all employers are eligible without evaluating an employer’s individual circumstances.


How Businesses Can Protect Themselves:

The IRS reminds businesses, tax-exempt groups and others being approached by these promoters that there are simple steps that can be taken to protect themselves from making an improper Employee Retention Credit.

  • Work with a trusted tax professional. Eligible employers who need help claiming the credit should work with a trusted tax professional; the IRS urges people not to rely on the advice of those soliciting these credits. Promoters who are marketing this ultimately have a vested interest in making money; in many cases they are not looking out for the best interests of those applying.
  • Request a detailed worksheet explaining ERC eligibility and the computations used to determine the ERC amount.
  • Don’t apply unless you believe you are legitimately qualified for this credit.


Proper ERC Credit Eligibility:

Employers may claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. There are criteria and tests for eligibility that employers must pass and are summarized:


To echo the IRS’s statements on proper filing, ensure that you have enlisted a qualified professional to review your eligibility and prepare your claim for ERC. Please contact Accavallo & Company at (203) 925-9600 or [email protected] for assistance. We are here to help.


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Sherri Fisher is a Tax Manager at Accavallo & Company, LLC.  Sherri has longstanding expertise in Trust and Estate Taxation, Eldercare, and Estate planning. Sherri appreciates the relationships she has built with estate planning attorneys and advisors, to provide a team approach to assisting her clients. Sherri also has seasoned experience in business and individual taxation and is partial to assisting start-ups in developing overall accounting and operating plans.

Prior to joining Accavallo & Company, LLC, Sherri was a manager in a large firm, servicing high net worth trust clients, business, and personal clients. She was also a Partner in a large bookkeeping firm, which specialized in cloud accounting systems for regional and national companies. Sherri led a team in assisting clients to organize their accounting systems.  She is a graduate of Florida Atlantic University with a B.S. degree in Accounting.    

Sherri’s experience includes working with companies and organizations in a variety of industries including:

  • Investment Trusts

  • DAPT and Family Investment Partnerships

  • Estate and Probate Administration

  • E-Commerce

  • Manufacturing

  • Construction

  • Real Estate Investment

  • Marketing and Service-based industries

In addition to her professional accomplishments, Sherri is an Intuit Advanced Pro Advisor, Intuit Future Firm Advisory Board member, member of the Valley WIN Network, and proudly served as past Connecticut Public School liaison for the Yale Tommy Fund for Childhood Cancer. Sherri enjoys time with her family, Cleveland sports, thrifting and gardening.