After years of low examination rates, the IRS announced it will increase audits of small businesses: by 50 percent. 

Source CPA Practice Advisor  Jan 12, 2021

Employee Retention Credit Audits are coming

Fraudulent claims of the credit could be one of  — if not the — largest tax-related scams in U.S. history.

IRS is now watching
Bruce Friedland, an IRS spokesman, said in a statement that “With any new tax law, the IRS conducts training for examiners on how to successfully examine the issue. In order to conduct examinations of Employee Retention Credit claims as efficiently as possible, we are training groups of agents on the Employee Retention Credit.” He called the benefit “an important source of relief for small businesses in need of assistance,” adding that “the IRS takes fraudulent claims of pandemic relief funds very seriously.” The agency will get $80 billion in additional funding, with more than half going to enforcement efforts, under the Inflation Reduction Act that President Joe Biden signed last month.  

The IRS has repeatedly warned about the heavily advertised promises of money for potential recipients and has trained its auditors to more closely scrutinize ERC claims that seem to show the biggest risk of fraud, while the IRS’s Criminal Investigation division has been working to identify scams and firms that tout fraudulent claims.

While the period of eligibility for the ERC for businesses is limited, covering only March 13, 2020 through Dec. 31, 2021, businesses can continue to file claims for the credit until April 15, 2025 under current law, meaning the IRS is going to continue to receive the claims, thanks to the aggressive advertising.