Tax News & Views Throws the Book at ERC Fraud Roundup

August 9, 2023

Employee Retention Credit a ‘Great Concern’ for IRS, Werfel Says - Jonathan Curry, Tax Notes ($):

Amid an ongoing “barrage” of advertisements by sketchy promotors of ERC scams, the IRS is being inundated with claims, Werfel said.

“We’re being flooded by so many claims for the ERC that we’ve had to devote extra staff to process them,” [IRS Commissioner Danny] Werfel continued. As part of that staffing-up process, the IRS is employing auditors trained specifically to identify markers of ERC fraud as well as investigators from the Criminal Investigation division to identify fraudulent claims and promotors of fraud.

“We’re increasing these audit and investigative activities against both promoters as well as the businesses filing dubious claims,” Werfel said.

Related: What to Know About the Employee Retention Credit.


Small Businesses May Be In The Dark About FinCEN Rule - Natalie Olivo, Law360 Tax Authority ($):

But as some see it, the way the rules define large operating companies that are exempt from reporting — businesses with over 20 full-time U.S. employees and more than $5 million in gross receipts or sales — renders the regulations both under- and overinclusive.

The rules are overinclusive because they're going to sweep in lots of businesses that present basically zero risk of money laundering or terrorist financing, according to [Davis Polk & Wardwell LLP partner Dan] Stipano. At the same time, the guidance's definition of a large operating company isn't really such a large company, he said.

Stipano added, "If you are a sophisticated money launderer, that is a loophole you can drive a truck through."

The article notes that banks may be required to check the compliance status of their customers as part of their due diligence. 

For background on these rules, check out the FINCEN Beneficial Ownership Information Reporting Rule Fact Sheet



GOP Buries IRS Spending Cuts in Offbeat Spending Bills - Doug Sword, Tax Notes ($):

The $21.4 billion in IRS cuts over two years that President Biden agreed to in May would turn into a one-year cut of $67 billion, according to an analysis of spending bills released by House Appropriations Committee Republicans.


A total of $56.8 billion of those cuts are in obscure places — a provision on the fifth-to-last page of the 197-page Transportation-Housing and Urban Development (T-HUD) bill would cut $25 billion from the special funding the IRS got; a pair of IRS cuts in the Commerce-Justice-Science (C-J-S) spending bill total $22 billion; and a similarly buried cut of $9.8 billion is on the fourth-to-last page of the Labor-Health and Human Services (Labor-HHS) spending bill.

The article says the stealth IRS budget cuts have no chance of advancing in the Senate.

IRS Commissioner Werfel Warns on Impact of Future Funding Cuts - Erin Slowey, Bloomberg ($). "While Werfel is optimistic about the agency’s transformation after funding cuts from the debt ceiling deal, he warns that more cuts to the agency’s annual appropriations would mean the agency would have to dip into its tax-and-climate law funds to fund regular operations."


New LB&I Compliance Campaign: Inflated Cost of Goods Sold - Chandra Wallace, Tax Notes.

The IRS didn’t provide a reason for adding the campaign, but its potential application could be broad because of the numerous components that can go into COGS, including inventory, raw materials, labor and personnel costs, and other expenses directly connected to a product or service.

For example, recent fuel excise tax credit cases turned in part on taxpayers’ inflation of COGS. The taxpayers owed fuel excise taxes but were also entitled to offsetting credits on the fuel under section 6426. Instead of claiming the net excise tax amount in its reported COGS, the taxpayers disregarded the credits and claimed the full amount of tax that would have been owed without them.


Security Summit reminder: Identity theft red flags tax pros should know - IRS:

Tax pros should be on the lookout for these critical warning signs from their clients:

-Clients receive notice that an IRS online account was created without their consent or that:
-Someone accessed their IRS online account without their knowledge.
-The IRS disabled their online account.
-Clients receive a tax transcript they didn't request.
-Balance due or other notices from the IRS are received that are not correct based on the tax return filed.
-Clients respond to calls or emails the tax pro didn't make.
-Clients receive refunds without filing a tax return.


Canada’s tech tax threat risks sinking Biden’s global tax plan - Brian Faler, Politico. "It amounts to a vote of no confidence in the long-running effort, one the administration is worried could prompt other countries to follow suit — unraveling years of difficult negotiations."


Impatient Senators want Treasury/IRS to act now on crypto tax evasion rules - Kay Bell, Don't Mess With Taxes. "Supporters of the expanded reporting say it would give the IRS necessary tools close the Tax Gap, the size of which many say is due in large part to uncollected crypto taxes."

IRS Announces Plans To (Almost) Go Paperless Beginning In 2024 - Kelly Phillips Erb, Forbes. "Currently, IRS employees manually enter numbers from paper returns into computers one digit at a time, creating significant delays for taxpayers and challenges for IRS staff."


Employers Can't Rely on Supply Chain Disruptions to Claim Employee Retention Credit - Parker Tax Pro Library. "The Chief Counsel's Office explained that a narrow, limited exception applies under Notice 2021-20 for employers that had to fully or partially suspend their business operations because their suppliers who provided critical goods or materials were fully or partially suspended due to orders from a governmental authority."

Florida Lottery Ticket Wins $1.58 Billion, $493.5 Million After Taxes - Robert Wood, Forbes. "Why is only 24% withheld and sent directly to the government? That’s the rule, but on these numbers, paying that extra 13% in April could be painful indeed."


New Rules Make I-9 Process Simpler —But It’s Still Easily Overlooked - Amber Gray-Fenner, Forbes. "U.S. Citizenship and Immigration Services released a new version of the I-9 on August 1. Temporary rules for remotely verifying employee identities that were implemented during the Covid-19 pandemic ended on July 31. The new form provides for remote examination of an employee’s identity documents for qualified employers."


Chiefs and Royals Could Ask For 40-Year Sales Tax Increase Extension - Rebekah Barton, TaxBuzz. "On April 5, 2006, Jackson County voters approved a 3/8 cent sales tax to go toward improvements for both the NFL and MLB teams' stadiums."

Of interest: Are Sports Stadiums a Catalyst for Economic Development? (Federal Reserve Bank of St. Louis): "When surveyed, 86 percent of economists agreed that 'local and state governments in the U.S. should eliminate subsidies to professional sports franchises.'"


Myrtle Beach man pleads guilty to wire fraud and tax fraud - IRS (Defendant name removed):

Evidence obtained in the investigation revealed that from November 2020 to December 2021, during the COVID-19 pandemic, Defendant was employed as a general manager at the Carolina Pines RV Resort in Conway, South Carolina. During that time, when it was not uncommon for guests to cancel reservations, he fraudulently generated $828,516.00 in customer refunds that were neither authorized nor requested by guests for completed reservations. After generating the fraudulent refunds, Defendant then wired the refunds to his personal financial accounts. In addition, on February 27, 2022, Defendant electronically filed with the IRS a 2021 Form 1040 in which he substantially understated his total income for calendar year 2021, resulting in a tax loss of $270,686.00.

Not really amazing that he would steal from his employer and also leave the theft proceeds off his return.


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