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The IRS May Levy a 75% Penalty for ERC Tax Refund Taxpayer Audits–Is it worth the Risk?

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By Tim Connolly, CEO and Founder of Corporate Strategies Merchant Bankers

The Employee Retention Credit (ERC) tax refund program substantially benefits qualified companies, churches, schools, and non-profits that kept employees working during the pandemic.

This is an especially appealing prospect today, with many businesses, faith-based communities, and non-profits now facing a significant revenue slowdown and a possible recession in 2023.  

The vast amount of money available through the ERC is complicated and combined with qualification criteria that some consider “open to interpretation.” This has led to newly formed and unknown, heavily advertised credit mills that erroneously convince unknowing business owners that they qualify for oversized ERC tax refunds.

ERC Payroll Tax Refund Fraud: Fraud related to the ERC tax refund program is now estimated to be more than a trillion dollars, and the IRS has already hired 300 new examiners to audit suspicious ERC refund claims. Furthermore, the statute of limitations on auditing any ERC claim is now five years from the date of filing for the ERC credit.  

If the mere suggestion of an IRS audit sends shivers down your spine, understand the magnitude of penalties for an improperly filed amended ERC tax refund.

IRS penalties range from 20% of the refund claim amount to 75% of a tax refund deemed to be filed in bad faith. A $1,000,000 improperly documented ERC tax refund could result in an IRS demand for $1,750,000 repayment plus interest. 

Now that I have you reaching for your tax attorney’s number for advice, we should look at the history of the CARES Act and the ERC.

The CARES Act and the ERC: In February 2020, our company began researching the pending COVID assistance legislation. We received copies of the Senate’s daily distribution list of the bill and its evolving language. We invested hundreds of hours in professional resources reviewing the legislation, and the Senate passed the 1100+ page CARES Act unanimously on March 25, 2020.  

We continued following the subsequent CARES Act evolution, including SBA and IRS FAQs, ongoing IRS guidance, and numerous revisions since then, developing a knowledge base that had to be continuously updated. 

The IRS has stated if the taxpayer has these qualifying documents in the event of an audit, they will be deemed to have filed a good faith claim, minimizing penalty risk.

ERC Providers – We suggest the following questions be asked of those soliciting your ERC work, as they are vital issues beyond how your organization’s revenues dropped between 2019-2021:

How long has your company been in business, and what is the experience of your principals with the CARES Act, finance, and taxes? 

What is aggregation, and how does it affect our company’s eligibility for the ERC? 

How do the PPP requirements for FTEs differ from the ERC?  

I am the majority owner of a family business. Do my family members qualify for the ERC? 

We are a faith-based community, and some clergy employees do not pay into Social Security or Medicare. Do they qualify for the ERC?

We have a PPP loan outstanding that has not been forgiven. How does this affect our eligibility? 

Can our ERC tax refund be determined by comparing our quarterly 941 filings from 2019 with 2020 and 2021? 

We are a school that closed from March 2020 until January 2021—are we eligible for ERC the entire time we were closed? 

How do we determine our eligibility and refund amount if our operations were partially suspended from March 2020 until the end of 2020? 

If the prospective provider cannot answer these questions, including providing the IRS guidance supporting their answer, move on.

Regardless of the service provider you choose for ERC tax refund qualification, Corporate Strategies Merchant Bankers believes this worthy, one‐of‐a‐kind tax refund program will continue to be a prime target of future audits.

Since Congress recently appropriated $80 billion in the expanded budget, the IRS will justify that increased budget by hiring more auditors to review ERC tax Refund claims for fraudulent or incorrect filings.                        

For more information on the ERC Tax Refund Program:

Call (713) 621-2737

email Action@CSBankers.com or 

visit https://corporate-strategies.net/erc-refunds/

Corporate Strategies understands the unique elements of qualification for the ERC Tax Refund by businesses, religious organizations, schools, and non-profits. The company was fully involved with the CARES Act legislation before it passed. Their principal owner has in-depth knowledge of the Senate distribution list of the CARES Act and its many amendments. This first-mover knowledge of the CARES Act provisions enabled their clients to quickly obtain PPP, PPP2 loans, EIDL loans, and Employee Retention Tax Credit Refunds totaling many millions of dollars – all before many other service providers even knew the details of qualifying under the law.

Corporate Strategies has developed a unique body of knowledge to accurately qualify diverse types of organizations for the maximum legal tax refund. This experience analyzing the provisions of the CARES Act and the hundreds of pages of IRS documents on how to qualify and composition ERC Tax Refunds has resulted in tax refunds ranging from $70,000 to $2,900,000. Much of this funding was for parties previously informed by tax professionals that they did not qualify for the ERC Tax Refund program.

Corporate Strategies is a leader in the private lending and real estate investment community. The company achieved this by successfully financing small to medium-sized businesses and startups (SMBs) that conventional banks have rejected. They actively invest in commercial real estate acquisitions, development, private lending for bank non-renewal of business loans, and private lender asset-based financing. 

About The Author

Tim Connolly is CEO and founded Corporate Strategies Merchant Bankers in 1989. Tim and the Corporate Strategies team have extensive public and private company experience in the US and International Merchant Banking, creating unique non-bank funding solutions for SMBs and leading turnaround operations teams in the USA, Canada, and the European Union.

Corporate Strategies (https://CSBankers.com) is a leader in the private lending and real estate investment community. The company achieved this by successfully financing small to medium-sized businesses and startups (SMBs) that conventional banks rejected.

They actively invest in commercial real estate acquisitions, development, private lending for bank non-renewal of business loans, and personal lender asset-based financing.

Since February 2020, Corporate Strategies has also assisted businesses, churches, and non-profits in receiving CARES Act emergency funding through PPP loans, EIDL loans, ERC payroll tax refunds, and Recovery Startup Business funding.

Tim has been a nationally syndicated radio commentator and guest on CNBC, ABC, NBC, and other business and political news programs. He holds Business, Marketing, and Business Administration undergraduate and Masters degrees from Texas A&M University, College Station, and Canyon, Texas.

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