Risk Factors
ERC Penalties
Repayment of Credits:
If it is determined that a company wrongly claimed ERC tax credits, they may be required to repay the credits with interest.
Penalties:
Failure to pass an audit may also result in penalties. Negligence in complying with tax laws can incur an accuracy-related penalty, typically amounting to 20% of the underreported tax. In cases of fraud, the penalty rises to 75% of the tax owed.
Interest:
Interest on erroneous refunds is generally assessed from the date of payment of the refund. Further, interest is also assessed on any penalties as discussed above. Critically, such interest compounds daily. IRS audits of ERC claims have begun only relatively recently, so it may be common for more than a year to pass between a taxpayer receiving the ERC refund and having to pay it back upon audit. This would result in substantial interest being due with the repaid claim.
Criminal Charges:
The IRS has the authority to bring criminal tax fraud charges on those individuals or corporations willfully trying to defraud the government through false tax credits, potentially leading to fines and imprisonment.
Loss of Future Benefits:
Non-compliance in an ERC audit can also result in losing access to future benefits, tax credits, or government contracts.
For details on the risks and penalties associated with this matter, please refer to the information provided by the IRS via the link below for a comprehensive understanding. https://www.irs.gov/payments/erroneous-claim-for-refund-or-credit