ERC Processing Time & Fraud Alerts

MB Automotive Specialists filed a class-action lawsuit against ERC Specialists under the Illinois Uniform Deceptive Trade Practices Act and the Illinois Consumer Fraud and Deceptive Business Practices Act. The lawsuit accuses ERC Specialists of filing improper ERC claims on behalf of small businesses, potentially exposing them to significant legal and financial risks. This lawsuit highlights risks for businesses, paralleling issues in Synergi Partners lawsuits and potential cases against Innovation Refunds and Bottom Line Concepts.

Polk Mechanical Company filed a lawsuit against the IRS for inaction on their ERC filings, submitted on January 27, 2022. The suit underscores the frustration businesses face with the IRS’s delayed processing of ERC claims amidst ongoing fraud investigations.

National Taxpayer Advocate Erin Collins criticized the IRS’s handling of ERC claims in an interview with Tax Notes, calling the processing "a mess." Collins highlighted a backlog of 983,000 unprocessed amended employment tax returns, many of which likely involve ERC claims. She warned that legitimate businesses are suffering financial hardships due to the IRS's slow processing and the misleading tactics of some ERC promoters.

The Financial Crimes Enforcement Network (FinCEN) issued an alert about widespread fraudulent ERC claims. IRS Criminal Investigation (CI) identified over 323 investigations involving more than $2.8 billion in potentially fraudulent ERC claims across tax years 2020 to 2023.This fraud contributed to significant processing delays at the IRS, complicating the review of legitimate ERC claims.

A CNBC investigation highlighted how Innovation Refunds profited from the ERC by acting as a middleman between small business owners and independent tax attorneys. The company spent millions on marketing and charged a 25% contingent fee for handling ERC claims. After the IRS announced a moratorium on ERC claim processing in September 2023, Innovation Refunds reduced its marketing efforts.

The IRS announced an immediate halt to processing new Employee Retention Credit (ERC) claims until at least 2024, in response to a wave of fraudulent and overstated claims. The agency also intensified its scrutiny of the existing backlog of over 600,000 pending claims. Employers with pending claims were given the option to withdraw them, and those who had already received refunds were offered the opportunity to repay if they believed they no longer qualified. The IRS's actions aim to disrupt the "ERC mills," such as Innovation Refunds, Synergi Partners, Bottom Line Concepts, and ERC Specialists, aggressively marketing the credit, which have contributed to an overwhelming number of claims, surpassing the original cost expectations. IRS Commissioner Danny Werfel stated that the agency could no longer tolerate the increase in questionable claims driven by misleading marketing. The agency also warned that employers face potential penalties and interest if they filed ineligible claims, and announced that the scrutiny of existing claims could extend refund processing times significantly.

Larry Gray, a CPA with over 20 years of experience as a Government Liaison for the National Association of Tax Professionals, testified before the House Ways and Means Committee about the growing threat of aggressive and misleading third-party ERC mills like Bottom Line Concepts and Innovation Refunds, that target small businesses with improper and often fraudulent claims. Gray shared his firsthand experience dealing with firms like Bottom Line Concepts, ERC Specialists, and Jefferson Duke, which routinely assured businesses they qualified for the Employee Retention Credit (ERC) without properly evaluating their eligibility. Gray stated mills like, like Bottom Line Concepts, failed to ask crucial questions about eligibility, such as whether a government-mandated shutdown or significant revenue decline occurred, leading businesses to unknowingly face liability for improper claims. Gray emphasized the harmful impact on small businesses and ethical tax professionals, who are losing clients to these mills. He warned that these actions undermine the tax system, with improperly claimed ERCs leading to audits, penalties, and long-term financial consequences for unsuspecting business owners.

On June 23, 2023, FITSNews reported that Synergi Partners, a South Carolina-based tax credit consulting firm, is under legal scrutiny for allegedly advising businesses to improperly claim Employee Retention Credits (ERC) and demanding high contingency fees. Lawsuits against Synergi, including one from Marywood University, accused Synergi of providing faulty advice that led to improper claims, with Synergi seeking $900,000 in fees despite the university's ineligibility. Another lawsuit from Dynamic Integrated Services raised similar concerns about Synergi’s inaccurate ERC calculations and fees. Despite these allegations, Synergi claimed it does not offer tax advice or CPA services, raising questions about its practices. The article further linked the issue to broader concerns about firms like Innovation Refunds and Bottom Line Concepts, suggesting the potential for an Innovation Refunds lawsuit and a Bottom Line Concepts lawsuit arising from similar practices.The IRS has warned businesses they are responsible for ensuring their claims are accurate, as investigations into ERC fraud intensify.

Frost Law published an article cautioning businesses about the dangers of unscrupulous tax preparers exploiting the Employee Retention Credit (ERC) program. The article recounted a recent federal grand jury indictment in Utah, where two individuals and their accounting firm were charged with preparing fraudulent ERC claims, defrauding the government of millions of dollars. The article emphasized the importance of consulting a trustworthy tax professional, given the complexity of ERC eligibility and the IRS's increased scrutiny of ERC claims. Such cases highlight the risks of engaging with firms like Synergi Partners, which has faced multiple lawsuits due to questionable ERC advice. The article also highlighted the potential for other firms like Innovation Refunds to encounter legal challenges. Frost Law urged employers to work with reputable, licensed tax practitioners to avoid falling prey to fraudulent preparers and to ensure their ERC claims are legitimate.

The Wall Street Journal highlighted the rise of a cottage industry surrounding the Employee Retention Credit (ERC), as firms aggressively marketed services to help small businesses claim the tax break. One notable incident involved Synergi Partners, a prominent ERC advisory firm, which was sued by Marywood University in June 2022. The university claimed Synergi Partners advised them to file for over $6 million in ERC refunds and sent an invoice for $901,942. However, Marywood’s outside accountants determined the university was not eligible for the credit. The lawsuit was later dismissed, with both parties reaching a mutual resolution. Synergi’s legal officer, Ashley Hogsette, emphasized that the firm does not pressure clients to take credits if they have concerns. The article underscored the risks businesses face when relying on third-party ERC advisory firms, such as Synergi, and the potential for improper claims leading to IRS audits, penalties, and legal disputes.

Additionally, the article noted how ERC advisory firms like Innovation Refunds have been under scrutiny, with mentions of potential legal actions resembling an Innovation Refunds lawsuit. This piece also detailed aggressive marketing tactics used by Bottom Line Concepts, hinting at the potential for a Bottom Line Concepts lawsuit due to rising disputes with clients.