In late March 2020, during a national lockdown and amid fears of widespread job losses, the CARES Act, one of the largest government aid packages in our country’s history, was enacted. This legislation aimed to provide substantial financial support, particularly encouraging small businesses to retain their employees and sustain their payroll. The Employee Retention Credit (ERC) emerged as a component of the CARES Act, offering a complex tax credit with extensive accompanying documentation to establish eligibility.

Over the years, the ERC was initially overlooked due to its relative complexity compared to other emergency aid programs like the Paycheck Protection Program (PPP). However, in 2022 and 2023, it gained immense popularity, largely driven by aggressive marketing from “Tax Representation Firms.” These firms made bold promises of quick and easy government money, often with inadequately trained sales representatives who relied on minimal or no supporting documentation from taxpayers. Consequently, a surge of questionable claims inundated the IRS, including outright fraudulent ones for companies that either had no employees or didn’t exist during the COVID pandemic. Many others filed with insufficient substantiation or overly liberal interpretations of the accompanying Notices. As a result, the IRS is actively engaged in auditing and pursuing those who have filed fraudulent or meritless claims.