Evette Davis: Okay, folks, I see that it is the top of the hour. For those of you just joining us, welcome to today's webinar, Employee Retention Credit, presented by the Office of Fraud Enforcement and National Fraud Counsel. We're so glad you're joining us today. My name is Yvette Davis, and I'm a Senior Stakeholder Liaison with the Internal Revenue Service and I'll be your moderator for today's webinar, which is slated for approximately 120 minutes. Before we begin, if there's anyone in the audience that is with the media, please send an email to the address on the slide. Be sure to include your contact information, as well as the news publication you're with.

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Today's webinar is Employee Retention Credit presented by the Office of Fraud Enforcement and National Fraud Counsel. This webinar is scheduled for approximately 120 minutes. So let me go ahead and introduce today's speakers. Today we have with us Thomas Kramer. He serves as the Acting Director in the Office of Fraud Enforcement. In this position, he acts as the Principal Advisor and Consultant to the IRS, Small Business Self Employed Commissioner and Deputy Commissioners on all issues involving fraud enforcement strategic plans, programs and policy. In the Office of Enforcement, he provides leadership and guidance related to the development and delivery of major activities in support of IRS efforts to detect and deter fraud. Welcome Mr. Kramer. Next, we have Carolyn Schenck. She's been employed with the Internal Revenue Service, Office of Chief Counsel for 17 years. And since 2020, she's been with the National Fraud Counsel and is also the Assistant Division Counsel, international level that is, in the Office of Chief Counsel. She has been an adjunct professor at Pepperdine University School of Law for Honors Appellate Advocacy. Prior to joining the IRS, she was an attorney for the Securities and Exchange Commission, Division of Enforcement. She is a member of the California and Maryland state bars and holds a Juris Doctor from Pepperdine University School of Law. And she has a Bachelor of Science, graduated summa cum laude from Northern Arizona University. Welcome, Miss Schenck. Next, we have Lloyd Kinlaw. He currently works in the Office of Fraud Enforcement in Emerging Threats Mitigation Team. He's been with the service now for 28 years; previously working as an Internal Revenue Agent in the income tax examination, the general programs, the abusive Transaction program, and as a non-filer specialist for the Gulf States area. Welcome one and all. We've got a wealth of knowledge with us today. Now I will turn the mic over to Tom, to share a few words. Mr. Kramer, the floor is yours.

Thomas Kramer: Well, thank you and hello, everyone. Welcome to today's IRS Webinar. My name is Tom Kramer. For the last eight months I've been the acting director of the Office of Fraud Enforcement. So thank you for having me. I'm excited to be here. Our topic for this session is Employee Retention Credit also known as ERC. As with other refundable tax credits, ERC has been exploited by fraudsters across the nation. In fact, ERC abuse has been so extensive that it ranks number one on the IRS' annual Dirty Dozen list of tax-related schemes for 2023. The Office of Fraud Enforcement actively detecting, mitigating and addressing fraud in this area. We will have on Lloyd Kinlaw, who's an expert in the ERC, to talk about some of the actions we're taking to combat ERC fraud. Before we dive into our topic of discussion, I'd like to provide you with a quick overview of the Office of Fraud Enforcement, especially because we're fairly new office at the IRS. The Office of Fraud Enforcement was created by the Commissioner of the IRS in 2020. We sit on the civil side of the IRS and act as a liaison to the Criminal Investigation Division. The mission of the Office of Fraud Enforcement is to promote compliance by strengthening the IRS' response to fraud and mitigating emerging threats. Our priorities include improving fraud detection, and development to address areas of high fraud, high non-compliance, cultivating internal and external partnerships to identify new treatment streams, to enhance compliance, pursuing civil fraud penalties and recommending criminal cases to criminal investigation that will lead to prosecutions when appropriate. We have two major programs, our Fraud Enforcement Field Office and our newer Emerging Threats Mitigation Teams. Our Fraud Enforcement Field Office is our traditional fraud program, which consists of around 80 fraud enforcement advisors. Our fraud enforcement advisors help civil compliance employees develop their civil cases, including cases that involve potential criminal fraud. We also help with cases that have potential for civil fraud penalty. Our newer program at the Office of Fraud Enforcement is called the Emerging Threats Mitigation Team. This innovative team leverages data and analytics and technology to proactively identify indicators of fraud. Lloyd Kinlaw, who you'll hear from a minute is part of this team. So I want to provide a couple of examples of projects led by our Emerging Threats Mitigation Team to give you a better idea of the work that they do. The first example is a Form 7200 project that was put into place to prevent ERC fraud. Right as COVID hit, eligible taxpayers could apply for the Employee Retention Credit by submitting Form 7200. The Office of Fraud Enforcement along with National Fraud Counsel and others, coordinated a cross functional project that involves monitoring Form 7200 submissions for fraudulent activity. The 7200 project review team stood up in April of 2020. This was one of the biggest manual fraud review programs in the history of the agency.

Frontline employees across the IRS work to ensure fraudulent claims weren't paid out. Team members were going through about 300 forms a day, it was high stress, high volume; overall, a true team effort.

Over a billion dollars was protected as a result of this project. As the Office of Fraud Enforcement referred cases to criminal investigation for criminal prosecution, many of these cases are starting to hit the news now. Another project is our fabricated entities project, as an extension of the Form 7200 work I just mentioned. The fabricated entities team identifies individuals who receive fraudulent refunds by creating fictitious businesses and reporting false COVID-related credits. Our Emerging Threats Mitigation Team uses data and analytics to identify likely fictitious businesses based on patterns or trends, and then they take the appropriate action. Dozens of cases with millions of dollars what we believe were fraudulent refunds were referred to criminal investigation for prosecution. These are just two small examples of the work being done by Emerging Threats Mitigation Team and the Office of Fraud Enforcement. In addition, the Office of Fraud Enforcement works hard to bring in tools and training to help compliance employees combat emerging threats. For example, we recently provided digital asset, forensic tracing licenses training and support to civil employees across the IRS. We also leverage various communication channels to deter future fraud. We recently launched an Office of Fraud Enforcement website and are working on leveraging social media to warn the public about potential scams.

Lastly, last thing I'll say, one other very important aspect of the Office of Fraud Enforcement is our partnership with National Fraud Counsel. When the commissioner created the Office of Fraud Enforcement 2020, he named Carolyn Schenck National Fraud Counsel at the IRS. Carolyn and her team of attorneys are amazing champions in helping combat fraud and emerging threats. I've been lucky to work with Carolyn and her team over the last year. I'm going to turn it over to Carolyn Schenck now to talk a little bit more about National Fraud Counsel and help kick us off today. Thanks, Carolyn. Carolyn Schenck: Thanks, Tom, for that very gracious introduction Evette. It's a pleasure to be here. Thank you, all of you who have joined the webinar today and those of you who may be watching it, or listening to it in the future. I appreciate your attendance today. Chief Counsel has a long standing tradition of supporting the IRS' National Fraud program and our relationship was formalized with the creation of the National Fraud Counsel, as Tom mentioned. I was honored to be the first one drafted into this position in May of 2020. Now, just a little bit about the Office of Chief Counsel for those of you who aren't familiar, we have 48 field offices plus a national office and we employ approximately 1500 Chief Counsel Attorneys. Now of that group, on my National Fraud Counsel team, there are four attorneys one from LB&I, two from SBSE, and one from CC Counsel, along with a designated point of contact attorney within TEGE. We have a cadre of about 120 counsel attorneys around the country who we have paired one-on-one with fraud enforcement advisors who are employed by the Office of Fraud Enforcement. Our purpose of doing that was to make sure that the Office of Fraud Enforcement fraud enforcement advisors had a specific counsel attorney to go to with any particular issues and/or particular cases that they needed guidance with. Now, of course, we have counsel attorneys who work fraud cases around the country and those are not just exclusively that list of 120 persons. Fraud is the type of issue that permeates probably every docketed attorney's caseload at this point, given the types of cases that we're seeing across the office. So there are counsel attorneys who are working on these issues nationwide. Now, as I said, the cadre assists fraud enforcement advisors with specific cases and issues, as well as provides support, and trainings and workshops. Now since standing up, our team has partnered with the Office of Fraud Enforcement on several initiatives. The first and probably the biggest is the introduction of an element-based review of fraud cases, meaning that we look at the elements of a particular applicable fraud penalty, or if a criminal case the elements of that charge, and then focus our evidence around those elements. Now, this lends itself to a number of things, but mainly to accountability. On the part of the agents working the cases, the counsel attorneys who may be approving the penalties and any special agents, should this be a criminal referral to IRS CI with the case, so that the evidence is organized and clearly articulated. We have also revised the Form 2797, Criminal Fraud Referral Form adding several fields including narratives and specific fields for certain evidence. And we've also sought, and this is part of a bigger a bigger theme here, is to get cases into the proper treatment stream, whether that means a civil fraud, a criminal fraud referral, or neither or both making sure that the right case ends up in the right treatment stream. So our office also provides legal guidance as to recently enacted legislation in areas such as the CARES Act and other related legislation that we're discussing here. As Tom mentioned, a specific project that our National Fraud Counsel team and OFE partnered on and that was the Form 7200 project involving COVID-related fraud. We're involved in a number of those types of initiatives, as well, and we continue to partner with the Office of Fraud Enforcement. To date, our team has done thousands of hours of workshops and trainings both internally and externally on a variety of topics and to a variety of audiences. At this point, let me turn the presentation over to Lloyd. Lloyd Kinlaw: Thank you, Carolyn. And thank you, Tom. It's been a pleasure collaborating with Carolyn and Tom on addressing various issues related to Employee Retention Credits. Alright, hello, everyone, and thank you very much for joining today's IRS webinar to discuss the Employee Retention Credit, which is also known as the Employee Retention Tax Credit, and which is also known as the ERC or ERTC. During this presentation, I'll probably refer to it as ERC so you know. But while we provide lots of information on our website, setting such as these and meetings with our tax practitioners, allow us to present specific areas of interest to our tax professionals. And it's a very, it's an incredibly valuable opportunity for us to discuss these issues with you. We rarely get the opportunity to meet with our practitioners to provide clarity where there could be misinformation and that is the case with the Employee Retention Credit, which we will discuss in detail later. But it also provides us an opportunity to let you know what the IRS is focusing on and to let you know what we're seeing. So we are truly grateful that you've joined us today. Alright, so let's begin. To meet the opportunity, to meet the objectives of today's presentation, I'll provide an overview of the Employee Retention Credit, where we'll discuss the law, the eligibility requirements, and all of the specific rules that apply to the Employee Retention Credit. We'll also discuss key areas of ERC compliance, issues that we are encountering in examinations and audits. We're going to discuss characteristics of potential ERC fraud, which the Office of Fraud Enforcement focuses on. And we're also going to describe ways to report potential ERC fraud and give you some advice on how to steer your clients away from it. Okay, so the first of the four sections for today's webinar is an overview of ERC and this will include a discussion of some technical aspects of ERC law, which will include the eligibility requirements, the time period for eligibility and the dollar limitation. We'll also discuss the legislative changes that impacted the application of the law.

This overview applies to taxpayers in general. But be sure that you exercise due diligence and research ERC law further as you learn and gather specific details about your clients. As with any tax law, facts and circumstances must always be considered when applying to provision, but especially when it comes to the Employee Retention Credit. Okay, so let's discuss what prompted the creation of the Empire Retention Credit. Evette Davis: Lloyd, excuse me. Lloyd, I do apologize. This is Evette. Could you turn up your volume or speak a little bit louder? We're having some issues with hearing you clearly. No worries. Thank you so much. Lloyd Kinlaw: Okay, let's just do a sound check. Is this better? Evette Davis: Oh, yeah, that sounds a lot better.

Thanks. Lloyd Kinlaw: Okay, great. Sorry about that. I had to adjust my mic. Okay. So let's discuss what prompted the creation of the Employee Retention Credit. After the first case of COVID-19 was detected in perhaps late 2019, the disease spread rapidly across the globe. By mid-March of 2020, it spread so expensively that the World Health Organization declared the outbreak a global pandemic. So in response to the declaration of that pandemic, countries around the world, including the United States, implemented shutdown orders on various public venues and stay at home orders on the public in an effort to mitigate the spread of COVID-19. So naturally, those shutdown orders and stay at home orders that were imposed on the citizens of US were going to have a devastating effect on businesses. Without employers having cash flow to fund their payroll, from the halt of business operations, some employers may have faced the tough decision of perhaps having to layoff or terminate employees. And in worst case scenarios, some businesses were even in jeopardy of permanently closing their doors, particularly if they were already struggling before the pandemic. So after taking into consideration the potential devastating impacts of COVID-19 shutdown order on businesses, Congress passed the Coronavirus Aid Relief and Economic Security Act, also known as the CARES Act in March 2020. And the purpose was to provide some financial relief to businesses while they were not able to operate, but also to incentivize businesses to continue paying their employees even when the business operations were suspended. So to do so, Congress allowed eligible employers to receive the Employee Retention Credit, which is a fully refundable credit they can receive against employment tax. Now that credit is available on 941, the Form 941, which is a quarterly tax return for the general population of employers. And this is probably the form that is most frequently used by most employers. But it's not only available on the Form 941, the credit is also available on other employment tax returns, including Form 943, which is the Employer's Annual Federal Tax Return for Agricultural Employmees. It's also available on Form 944, which is the annual tax return for employers with annual liability for Social Security and Medicare and withheld federal income tax is $1,000 or less and Form CT-1, which is the Employer's Annual Railroad Retirement Tax Return. So yeah, this credit is not only available on Form 941, but it's available on other employment tax returns as well. Now, I stated earlier the Employee Retention Credit is a fully refundable credit. In other words, if it exceeds the amount that a taxpayer owes for the year and the taxpayer receives a refund of the excess, if they qualify for the credit. As such, refundable credits have historically been magnets for abuse and ERC is no exception. As Tom mentioned earlier, the IRS listed the Employee Retention Credits as the number one issue on its 2023 Dirty Dozen list and that Dirty Dozen list is published at the IRS.gov website. And basically that list is published annually to alert the public about the 12 most concerning areas of abuse. So this is why we've really been excited about delivering this particular topic during our webinar to attendees and we hope you leave enlightened and prepare to appropriately address any ERC issues you may encounter as you serve your clients. Alright, so back to our overview; ERC was introduced as part of the CARES Act, and was originally available to eligible employers for wages paid to employees from March 13, 2020 through December 31 of 2020.

But as you can see on this chart, Congress passed three pieces of legislation following the CARES Act that changed the definitions, the eligibility requirements, and dollar limitations for subsequent quarters. The Relief Act applies to wages paid during the first and second quarters of 2021. And then we have the American Rescue Plan, which added IRC section 3134 to the code and that applies to wages paid during the third and fourth quarter of 2021. And finally, the Infrastructure Investment and Jobs Act, retroactively limited eligibility in the fourth quarter of 2021 to recovery startup businesses and we'll discuss more of that later. But it's important to keep in mind that the applicable law depends on when the wages were paid to the employees. Alright, so before we can calculate the Employee Retention Credit, we must determine who is eligible for ERC. For tax year 2020, eligible employers include employers carrying on a trade or business, tax exempt employers and tribal entities that carried on a trade or business. And those tribal entities they can be either government or non- government, just as long as they carried on a trade or business during tax year. For tax year 2021, certain but not all, governmental employers were added to the list of eligible employers. These employers are a 501(c)(1) organizations, governmental employers that are colleges or universities and governmental employers where the principal purpose or function of such entity is providing medical or hospital care. And when it comes to household employers, they are never eligible for ERC with respect to their household employees. Those household employers may have another business, but in their capacity as household employers, they are never eligible for ERC. Alright, so once it is determined that the employer is a type that is eligible for ERC, we must determine if the employer met at least one of three conditions during the period of eligibility to qualify for ERC. And again, to be eligible for ERC, they have to have met one of these three conditions. We'll go to the next slide. One condition that will make an employee eligible for ERC is if the business fully or partially suspended operations due to a COVID-19 government order and that government order, it could be at the local level, it could be at the state level, or the federal level, as long as they were subjected to one of those government orders at either one of those levels, then they do meet the eligibility requirements stated here.

Now the business does not have to fully shut down their operations for ERC eligibility, it can meet these requirements by partially suspending its operations just as long as it is subjected to a government order. Now, if it doesn't meet those conditions, and there is an alternative test, that may be considered for eligibility, and that's if the business has the required decline in gross receipts. This test is met by comparing the gross receipts of a quarter in which ERC is considered to the gross receipts of the same calendar quarter in 2019. So it's important that when you are considering this test that you are looking back to 2019 with regard to the gross receipts.

For 2020, this test is met if the gross receipts for the quarter is less than 50% of the gross receipts of the same quarter in 2019. If this test is met, then the employer remains eligible until the quarter after the one in which gross receipts were more than 80% in the same quarter of 2019.

And then there was a legislation that passed that changed the law for 2021. So for 2021, the gross receipts for the quarter must be less than 80% of the gross receipts for the same quarter in 2019.

Unlike 2020, there is a quarter-by-quarter determination. A special alternative quarter election allows employers to use immediately preceding quarter's gross receipts to provide eligibility. For example, if there's a 25% decline in the first quarter of 2021 then that can be used to provide eligibility for the second quarter in 2021. And finally, there is a third condition under which eligible employers may claim ERC but it only applies to the third and fourth quarter of calendar year 2021, and that is if it meets the definition of a recovery startup business. A recovery startup business is an employer that began carrying on a trade or business after February 15, 2020, had average annual gross receipts of $1 million or less for the three tax years preceding the quarter for which ERC is considered, and for the third quarter of 2021 only if it is not eligible for ERC under the full or partial suspension tests or required decline in gross receipts tests that we've previously discussed. It's also worth noting that the recovery startup businesses may report a maximum of $50,000 of ERC, and eligible for ERC for the third and fourth quarters of 2021 only. And another point that I want to make is that the aggregation rules, there may be aggregation rules that apply to the above tests. In those instances, all persons that are treated as a single employer under IRC section 52, subsection (a) or (b) or IRC sections 414 subsections (m) or (o) if they are treated as an employer for purposes of ERC, then we have to look at the aggregate amount with regard to these entities. Okay, so now that we've determined who is eligible, let's discuss what wages qualify for the ERC and how much is figured into the calculation. So first of all, we'll discuss what wages qualified. Qualified wages include payments to certain employees by the employer that are subject to FICA, plus qualified health plan costs. Now there's specific employee's wages that may be used to calculate ERC, depends on how the employer is classified, and they can be classified as either a small employer or a large employer. So let's differentiate between the two. A small employer during calendar year 2020 is one that employs an average number of 100 or fewer full time employees in 2019. And I want to emphasize that we are looking at the average number of full time employees in 2019 to determine if they are a small employer or large employer. For calendar year 2021, it is 500 or fewer full time employees in 2019. Now, you may be wondering how we define what a full time employee is? Well, a full time employee is one that works at least 30 hours a week, or 130 hours per month. To calculate the average number, the average number is calculated by adding the number of average monthly full time employees during each month in 2019, then dividing the sum by 12, if the employer was in existence for all 12 months of the year. And if the business is deemed a small employer, then it may use the qualified wages of any employee as long as it meets the eligibility requirements. Now, if the employer is classified or categorized as a large employer, the rules are different. So it's important to distinguish between the two. First of all, a large employer during calendar year 2020 is one who employed an average number of more than 100 full time employees in 2019 and then for calendar year 2021, it is more than 500 full time employees in 2019. If that is the case, if the business is deemed a large employer, then it may use only the qualified wages paid to any employee for the time that the employee did not provide services when it's calculating the Employee Retention Credit. And just to give you a heads up, there are certain employees whose relationship with the majority business owner makes them ineligible for the Employee Retention Credit. And we'll go more into detail about the exclusion later in the presentation. All right. And next there are dollar limitations that have factored into the Employee Retention Credit computation and it's based on when the qualified wages were paid, as mentioned earlier. For tax year 2020, the employer may include 50%, up to $10,000 of qualified wages paid to each employee from March 13 of 2020 through December 31 of 2020. So in other words, the employer could qualify for a maximum of $5,000 in Employee Retention Credits for each employee for the entire year of 2020. Then we mentioned those amendments and changes to the legislation that apply for 2021. For tax year 2021, the amendments to the CARES Act expanded ERC provision and allowed larger amounts of Employee Retention Credits for eligible employers. For 2021, the employer may include 70%, up to $10,000 of qualified wages paid to each employee for each quarter. So this means that an employer could qualify for a maximum of $7,000 in ERC for each employee, for each quarter in 2021 and we will re-emphasize that later in today's presentation.

Okay, Evette, I think now's a good time for questions for our audience. Evette Davis: All right, Lloyd. Whoa, you've given us a lot of great, great information. So hopefully, everybody's been taking some notes and yeah, it is time for our first of two polling questions that we're going to take care of right now. So, here's the first one. We want you to select the answer that best finishes the statement. To be eligible for ERC, an employer must a) experience full or partial suspension of operations, b) experience the required decline in gross receipts, c) send an email to Office of Fraud Enforcement, or is it d) meet either a or b? Take a moment. Think about all the good information you've just heard and what you already know, and click the radio button that best answers the question. I'll reread it and give you just a few more seconds to make your selection.

Finish this statement, To be eligible for ERC, an employer must a) experience full or partial suspension of operations, b) experience the required decline in gross receipts, c) send an email to Office of Fraud Enforcement, or is it d) meet either a or b? Okay, folks, hopefully you've had enough time. We're going to stop the polling now and let us share the correct answer on the next slide. Okay. And the correct response is d, meet either a or b. Now, let's see what percentage of you responded correctly? Let's see. All right, it looks like we have a response rate of 96%.

Woohoo. Okay, this is awesome. Lloyd. I think they've been listening and they are definitely tuned in to what you're saying. Alright, let's go on to the second polling question. When is a recovery startup business eligible for the Employee Retention Credit? Is it a) the first and second quarters of 2021, b) the third and fourth quarters of 2021, c) all quarters of 2020 or is it d) only in 2021? Again, take a moment, look at the question. Think about what you've heard and click the radio button that best answers this question. Give you just a few more seconds to make your selection. Okay, when is a recovery startup business eligible for ERC Is it a, b, c or d? All right, let's go ahead and stop the polling now and share the correct answer on the next slide. And folks, the correct response is, b, the third and fourth quarters of 2021. Now let's see what percentage of you responded correctly. Okay, Lloyd, it looks like the response rate is at 72%. So I think we need just a little bit more of an explanation as to why is the correct response is third and fourth quarters? Can you do that for us, Lloyd? Lloyd Kinlaw: Sure thing. I think is important to remember that when it comes to recovery startup businesses, they did not exist prior to the third quarter of 2021. They only exist for the third and fourth quarter of 2021. They are special and existed for a limited time only. So, yeah, when it comes to recovery startup businesses, just remember, they only existed for two quarters, and they were the last two quarters of 2021. And also, I do want to point out there when it comes to recovery startup businesses that they are limited to a maximum amount of Employee Retention Credit that can reported on the tax return to $50,000. Okay. Evette Davis: Great. All right, Lloyd, you've got it. Lloyd Kinlaw: All right.

Thanks, Evette. All right, so let's go ahead and move over to the key areas of ERC compliance and this section expands on ERC law, and it highlights special considerations and issues that our revenue agents and otherwise examiners frequently address in audits, which I'm sure everyone here is interested in hearing about. Okay, so, the COVID-19 pandemic prompted not only the IRS, but also other agencies such as the Small Business Administration to provide businesses with financial relief and some type of assistance specific to this extraordinary event. However, the relief provided in the CARES Act, and its subsequent amendments, generated some overlap of those benefits that could apply to the same qualified wages that were used to report the Employee Retention Credit. So as a result, Congress passed laws to disallow ERC wages that were obtained, or that were used to obtain other benefits, and that would include benefits that were tax related and non-tax benefits, and we'll discuss those. So, one of the considerations is the coordination of PPP loan activity. The Small Business Administration allowed employers to apply for and obtain loans to help keep their workforce employed during the COVID-19 crisis and these loans were called Paycheck Protection Program loans, also known as PPP loans, which you've probably heard a lot about in the media. Now, these loans can be used for payroll costs, including benefits, but they can also be used for other costs. They can be used for non-payroll costs that include certain expenses incurred before February 15th of 2020, such as interest on mortgage obligations, rents and utilities. Now the IRS published a notice and it's Notice 2021-20 and it provides guidance on how PPP loan activity affects the ERC eligibility and that notice states that eligible employers who received PPP loans are also allowed to report or claim ERC, however, and this is important, any wages forgiven from first and second draw PPP loans are not eligible for the employer retention credit. Now, the Small Business Administration has forgiven a substantial portion of the loans that were dispersed to applicants. They were issued to employers, and it has a significant impact on the eligibility of the Employee Retention Credit and this issue is frequently addressed in audits.

So it's important that you know and learn if your client obtained a PPP loan, and also if it was forgiven, then that needs to be taken into consideration in determining their eligibility for the Employee Retention Credit. Additionally, there may be instances in which wages that meet the qualifications for the Employee Retention Credit, also meet the qualifications for other credits whether there on the income tax return or employment tax return. If so, it's important to note that internal Revenue Code sections were enacted for disqualified wages for ERC, if they were used to obtain other tax credits and they are listed here on the screen. They include the Credit for Sick Leave and Family Wages, the Research and Development Payroll Tax Credit, the Work Opportunity Tax Credit, the Indian Employment Credit, Grants for Shuttered Venue Operators, and Restaurant Revitalization in the third and fourth quarters of 2021 and also the Credit for Employees who are Active Duty Members of the Uniformed Services. So it's important to keep in mind that there can be no double benefit for wages that are included in the computation of the Employee Retention Credit.

Also, ERC does not only impact other credits that are determined by wages, it also affects the wage related deductions on the employer's income tax return. As you can see here under Internal Revenue Code section 3134, subsection (e), the employer must reduce his deduction for wages on his income tax return by the amount of Employee Retention Credit reported on its employment tax return. So if the credit is later claimed on an amended employment tax return, the corresponding income tax return may also need to be amended to reduce wages expenses claimed on the original income tax return. Right, earlier I mentioned that an employer must exclude wages paid to certain parties who are related to the majority owner when calculating ERC. This list comes from the statute and it's section 2301, subsection (e) of the CARES Act and Section 3134 subsection (e) of the code and it references section 51, subsection (i) paragraph (1) of the code. But to make it easier for you to find this list is also stated in Notice 2021-49 which is available on our website. And the list of individuals whose wages are excluded include children and their descendants, siblings and step siblings, parents and their ancestors, step parents whether it's a stepfather or stepmother, and continuing they include a niece or nephew, an aunt, or an uncle, a son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, our sister-in-law, and also an individual, other than a spouse of the taxpayer, who lives with the owner. Now, it's important to remember that because of constructive ownership rules, a majority owner and their spouses wages qualify for the credit, but only if the majority owner and their spouse do not have a brother or a sister, whether it's by whole or half blood, ancestor or lineal descendant. And again, you can refer to Notice 2021-49 for more information. Okay, so in terms of compliance, that pretty much summarizes the issues that are frequently addressed in audits. Now, just yesterday, there was a stream of articles that were released, announcing the recapture of certain excess employment tax credits under COVID-19, including the Employee Retention Credit. But basically, the regulations were finalized that allow excess credits that were erroneously refunded to be treated as underpayments. In other words, they may be assessed just as you would any tax on a tax return and that's stated in Treasury Decision 9978 that provides more information about those revisions. But as you can see, even as recent as yesterday, regulations and policies are still being established that relate to COVID-19 legislation. In ERC, legislation is pretty complex, and it presented quite a few challenges for everyone, for taxpayers, practitioners, and the IRS, but with the amendments and the notices and the subsequent guidance released after the CARES Act was passed, many taxpayers had to file an amended return. A case in point when the ERC was first available, employers were not allowed to claim the ERC at all, if they received PPP loan. However, subsequent legislation allowed employers who received PPP loan to claim the ERC, but not on the same wages used for PPP loan forgiveness. And this began the first round of amended tax returns that were sent to the IRS. And they were both to claim the previously unclaimed Employee Retention Credits on the employment tax returns but we also receive the amended income tax returns to reduce the ways of deduction, which is appropriate. Additionally, the IRS has received an influx of amended returns resulting from aggressive ERC marketing by individuals and firms that may not be reputable, and we'll discuss that more in detail later during this presentation. So although the IRS has made significant progress to move tax returns through the pipeline, we still have a backlog but we are working fervently to get those processed or get those to examination whichever is appropriate. So on your screen, you see a special five-year statute of limitations that will apply to the third and fourth quarter and these are special consideration that were allowed through Internal Revenue Code section 3134, subsection (l). And it provides a special five-year statute of limitations for assessment of tax for any amount that is attributable to the Employee Retention Credits. And again, I want to point out that this is applicable only to the third and fourth quarters of 2021. Also, it is important to note that this special five-year statute period applies only to assessments that are not attributable to fraud. Now, if the amount is attributable to fraud, then pursuant to the Internal Revenue Code, section 6501, subsection (c), paragraph (3), there is no statute expiration date to assess the additional tax and penalties and again, that's in the case of fraud. All right. So Evette, I believe now would be a great time for the next round of polling question. Evette Davis: I agree. I agree, Lloyd. Thank you so much. Okay, audience, here are our next set of polling questions. The polling question three is as follows. What additional benefits may an employer obtain for qualified wages used to claim the Employee Retention Credit; a) Work Opportunity Tax Credit, b) second PPP loan that was forgiven, c) credits for sick leave wages paid, or d) none of the above? Think about what you just heard and what you already know. Take a moment and click on the radio button that best answers the question. We'll give you just a few more seconds to make your selection. What additional benefit may an employer obtain for qualified wages used to claim ERC; a) Work Opportunity Tax Credit, b) second PPP loan that was forgiven, c) credits for sick leave wages paid or d) none of the above. Alright, let's go ahead and stop the polling now and let's share the correct answer on the next slide. And folks, the correct response is d) none of the above. Let's see what percentage of you responded correctly? Okay, Lloyd, it looks like we're at 53% of correct responses. Can you give us an explanation as to why none of the above is the correct answer? Lloyd Kinlaw: Yes, when it comes to wages that are used to obtain ERC, it is important to remember that if they're used for ERC, then they're not eligible for any other credits, or deductions. Congress wanted to put in place laws that ensured that there's not a double benefit for wages, particularly if they're used for ERC.

Also, the wages that are used to obtain a PPP loan that was a later forgiven, they cannot be used for the employer attention credit at all. So it's important to keep that in mind. You can't double dip when it comes to tax benefits related to qualified wages. Evette Davis: Awesome. Thank you so much, Lloyd. Okay, folks, let's shake that one off and let's move on to polling question number four. And it states how are qualified wages for ERC treated on the income tax return? Is it a) no deduction is allowed for ERC wages in the amount of the credit, b) a deduction is allowed if the PPP loan for same wages was not forgiven, c) a full deduction is allowed for ERC wages or is it d)

a double deduction is allowed for ERC wages? All right. Take a moment. Look at the question again and the responses and choose the radio button that best answers the question. Okay. Just want to make sure you have enough time to respond to make your selection. How are qualified wages for ERC treated on the income tax return? Is it a) no deduction is allowed for ERC wages in the amount of the credit, b) a deduction is allowed if the PPP loan for same wages was not forgiven, c) a full deduction is allowed for ERC wages or is it d) a double deduction is allowed for ERC wages? Okay, let's go ahead and stop the polling now and let's share the correct response on the next slide.

Okay, folks, the correct response is a) no deduction is allowed for ERC wages in the amount of the credit. Now let's see what percentage of you responded correctly. Okay, Lloyd, we need your help again, it looks like we're at 67% of those who responded, responded correctly. Can you give us an explanation or can you just clarify why the response should be a? Lloyd Kinlaw: Absolutely, yes.

This is an issue that is visited very often in a lot of the audits that are conducted with regard to the Employee Retention Credit. But yet when it comes to wages that are used to report the Employee Retention Credit, there's no deduction that is allowed for those wages on the income tax return, okay. And this falls in line with the rule that no double benefit can be obtained from qualified wages used to obtain the Employee Retention Credit. So the deduction on the income tax return for wages must be reduced by the amount of Employee Retention Credit. So just keep that in mind. Evette Davis: Awesome. All right, Lloyd. Good stuff there. I appreciate you. It looks like you're going to remind us about the Employee Retention Credit eligibility requirements next. Is that right? Lloyd Kinlaw: Absolutely. Yeah, for more information on eligibility requirements, special provisions and alerts that are related to ERC, make sure you visit our website at IRS.gov and enter the words Employee Retention Credits into the search box. As you can see on the screen, we have several items that are available on our website. The first one describes the small business tax credit programs that are available for employers. Then there is a very convenient comparison chart with regard to the Employee Retention Credit and it compares the Employee Retention Credit provisions for 2020 to those provisions for 2021 and that's a very good bird's eye view of the Employee Retention Credit and how it changed from year to year. Then we have the Notice 2021-49, which was discussed a number of times during the presentation. And it really lays out those exclusions of wages that are specific to certain employees and it also gives more details about the effects of PPP loan activity on ERC eligibility requirements. And finally, there is a wonderful COVID tax tip and it's Tax Tip 2021-170 that gives taxpayers and the public a warning of third parties promoting improper ERC claims that we are about to discuss. It's really particularly important to be aware of the numerous frauds and schemes related to ERC, which actually brings us to the third section of today's presentation and that is the characteristics of potential ERC fraud. So the IRS has identified widespread fraud related to ERC and we have really ramped up our activity to address it accordingly. Many units within the IRS are collaborating to detect it, to block it, to identify it, and to take appropriate action to hold all parties accountable if they are engaging in some type of fraudulent scheme. We have a unit within the IRS called the Return Integrity and Compliance Services Unit and it puts filters in place to identify questionable tax returns reporting ERC based on the tax return data. We also have compliance employees in the collection and examination divisions who look for indications of potential fraud as they perform their audit and collection activities. Once they identify those indicators of fraud, they work with our fraud technical advisors in the office of fraud enforcement to develop the case. And then they will determine the next appropriate course of action, whether it is to refer it and continue their examination or collection activity, or if it's mandated to refer it to the criminal investigation division for consideration. In addition to that, we have our Office of Promoter Investigation and they oversee investigations that are authorized to review the practices of tax return preparers, and promoters based on leads that are submitted and those leads could come from either the public or they can come from IRS employees. And we also have the National Fraud Counsel that is providing legal advice and compliance strategies and any kind of enforcement initiatives. But they also review a lot of the IRS produced articles, presentations and training materials. And finally, we have our Criminal Investigation Division, which has initiated work based on its own analysis of leads that it receives from various sources, whether it's from IRS employees, or if it's received from someone external. So here are some recurring characteristics that we've identified in ERC related scam. Alright, so the first bullet that you see there is fictitious businesses. There are multiple IRS units and divisions that have identified employment tax returns that were submitted by businesses that turned out to be completely fictitious. I mentioned our unit called the Return Integrity and Compliance Services Unit, it is responsible for monitoring tax returns as they're filed, and this unit has a goal to flag highly questionable tax returns and take proactive measures to stop the issuance of refund that individuals may try to obtain fraudulently. And the Return Integrity and Compliance Services Unit, which we call the RICS unit, they establish various filters and implement them into the IRS' system to detect questionable tax returns based on tax return data, but also based on trends and patterns that may be indicative of fraud. And there are some circumstances that allow the unit to reject some tax returns outright based on the tax return data and information that's in the IRS system. For instance, if it receives employment tax returns, claiming the Employee Retention Credit from an entity that was created using a Social Security Number of a person that was let's say they were deceased for 10 years, then it has the authority to just reject that tax return outright. Another example is if the alleged business files employment tax returns for periods that precede the date that the business was created. But these are clear examples of huge red flags. And then there are other instances where there may be some significant inconsistencies, other non-compliance that warrants additional action by the IRS, such as issuing CP notices for correspondence audit, or maybe a field audit where our revenue agents and examiners actually meet with the person that created that instance. Now, as I mentioned, we have our examination division that is responsible for tax return audit but we also have a program that is dedicated to examining employment tax returns. So continuing our discussion of fictitious businesses, our examiners have sent appointment letters to some business owners or alleged business owners, and sometimes they never received a response.

There are cases where examiners are determining that individuals did not actually operate a business based on the individual's own statements during the audit and as they conduct their examinations, they are finding no evidence that the alleged business paid employees the amount of wages shown on the employment tax returns, also there's no evidence that the alleged business owner even had sufficient cash flow to pay the amount of wages reported on the employment tax returns. Our revenue agents will look at the amount of wages that are reported on an employment tax return, say for instance, they'll see $500,000 of wages that were allegedly paid to employees but then they'll look for some type of indication that that individual received income from some other source maybe looking at information returns that were that should have been issued or may have been issued to the individual or the business and they see no indication that that individual had the cash flow to pay the amount of wages shown on the employment tax return. And these are red flags that our examiners look for. And then finally, under fictitious businesses, my office, which is the Office of Fraud Enforcement, we work closely with examiner's who identify fictitious businesses during audits. We have also coordinated projects focused on identifying fabricated entities through data analytics and extensive research and we have been working closely with the National Fraud Counsel, which is headed by my co presenter Carolyn Schenck, who you'll hear from later today, and also criminal investigation for appropriate case development and the appropriate action. So these are some of the things that we're seeing with fictitious business. The second type of scheme that we've identified involves identity theft. One characteristic of potential ID Theft is when we receive multiple original returns for the same entity. And what we're seeing is that we will see multiple original returns from same entity, but then they'll have different address. Now, many of you know that the IRS issues refunds related to employment tax returns in the form of a check. They aren't directly deposited into an account, but they are issued in the form of a check and they are mailed to the address of record. We have seen cases where nefarious individuals may submit a change of address form to the IRS hoping that it's processed and then their goal is to retrieve the refund check from the bogus address. So just to let you know the IRS is closely monitoring that type of activity. Another indication of potential ID theft is when a business that has not had any filing activity for many years suddenly starts filing employment tax returns, specifically to claim the Employee Retention Credit, and to get refunds based on the credit that is reported on the employment tax returns. And we've seen businesses that have been dormant where they have no filing activity since, say, 2015 but then the only thing we see lately are employment tax returns for the years in which the Employee Retention Credit was available.

That's a huge red flag and a huge indicator that there could be some potential ID theft involved.

And finally under identity theft, I mentioned earlier that there were some entities that were created under the Social Security Number of a deceased person, or someone who is incarcerated, where the IRS is able to immediately freeze that submission, thanks for the outstanding work of our tax return monitoring unit. And then finally, the third bullet, it pertains to the bona fide businesses that intentionally report inflated and false Employee Retention Credits and these acts will mirror those carried out by fictitious businesses that we discussed earlier, where the IRS finds significant inconsistencies for the amounts of wages shown on Form W2 or W3 forms, employment tax returns, and income tax returns. In other instances, there may be original or amended tax returns prepared by an individual or firm that is under civil or criminal investigation for possibly assisting employers with reporting inflated or false Employee Retention Credits. And I want to point out that, although it's the preparer who may be under investigation in those cases, the IRS has a responsibility to determine if the taxpayer is possibly complicit in the scheme because in any type of work that we conduct, it's possible for the preparer and the taxpayer to be liable for taxes and penalties in those cases. And finally, if there is a significant payroll increase after the CARES Act was enacted, that may indicate potential fraud but while anything is possible, it's not likely that a business that meets the eligibility requirements for ERC would significantly increase its staffing while under a shutdown order, or under conditions during which it experienced maybe a significant decline in gross receipts. Now, it is a red flag, so that is something that we consider in terms of potential ERC fraud. So yeah, here are the three popular schemes that we've seen related to Employee Retention Credit, fictitious businesses, identity theft, and potential inflated or false employer attention credits.

All right, so we have our National Fraud Counsel here, Carolyn Schenck, who has some more information to provide about potential fraud. Carolyn, I will turn it over to you. Carolyn Schenck: Thanks, Lloyd. So far in this webinar, we've talked about the law. We have talked about the schemes that the IRS is seeing and I want to focus a little bit on the consequences. The IRS is taking very seriously erroneous claimed or refunded ERCs. Now if a tax return is selected for audit, that tax return filer can be prepared to receive an information document request, asking for information supporting the position used to determine the eligibility for the ERC claimed, and this could also request, this also could include a request for bank statements to support a showing that the employees were paid, as well as books and records to support that there is actually a business and the government is going to look for substantiation that the entity was entitled to claim the credit. Now as a foundational matter, the IRS needs to understand the nature of the business, its size and how it was impacted. The government will be requesting returns, documentation as well as doing internal and external research on the business or the government order being cited if applicable. We are also evaluating cases for the proper treatment stream meaning whether cases avail themselves to a particular penalty scheme and this of course could depend and does depend on the facts and circumstances of any particular matter. Now, we are looking at all of our enforcement options in these cases, which include the ability to assess the erroneous refund as an underpayment of the employment tax, as well as employment as imposing penalties, including the fraud penalty on the underpayment. Now on cases that warrant it, we are also pursuing criminal charges including but not limited to a charge under 26 USC 7206(1), that's fraud and false statements declaration and penalties under perjury; 26 USC 7206(2) and that's aiding and assisting the preparation of a false or fraudulent documents; also 18 USC 287, which is false or fictitious fraudulent claims; as well as false statements under 18 USC 1001. So those are some of the criminal charges that we have seen and that we are pursuing. Now the IRS is also pursuing promoters of ERC. Now, as Lloyd mentioned, on October 19, 2022, the IRS issued a notice that employers should be aware of third parties who are promoting improper ERC claims. Now in this notice the IRS cautioned employers that were aware of instances in which third-party promoters were overselling to the employer the right to claim the ERC, assisting employers to take improper positions relating to the taxpayers eligibility for and computation of the ERC, charging large upfront fees or contingent fees based on the amount of the ERC, and not adequately advising employers of all aspects the ERC laws, including, for examples, the requirement that employers reduce their claims wage when claiming the ERC. Now, from a criminal perspective, we are also looking at promoters in terms of criminal charges and those could include also 7206(2), which is aiding and assisting the preparation of a false return; also section 18 USC Section 286, which is conspiracy to defraud the government with respect to claims; as well as 18 USC 371, conspiracy to commit an offence or to defraud the United States. Now, those are some of the areas of criminal that we're looking at. From a civil perspective, promoters could face civil penalties such as 6694, which is an understatement penalty for an unreasonable position or for willfulness or reckless conduct; 6700 that's promoting abuse of tax shelters; or penalty under 6701, which is aiding and abetting an understatement of tax liability. Now, Evette, I am turning it over to you to present some additional questions for the audience. Evette Davis: Thank you so much, Carolyn, and also to you to Lloyd. Let's go ahead and jump into the next few polling questions. Here is our fifth polling question. Which of the following occurrences is the strongest indicator of potential ID theft? Is it a) employment tax returns filed for periods preceding the entity creation date, b)

entity created immediately after the CARES Act was enacted, c) multiple original employment tax returns filed for the same entity, or d) no corresponding W2 forms timely filed? Okay. Think about the question, take a moment, think about what you've just heard and click the radio button that best answers the question. Want to make sure I give you enough time to make your choice. Which of the following occurrences is the strongest indicator of potential ID theft? Is it a) employment tax returns filed for periods preceding the entity creation date, b) entity created immediately after the CARES Act was enacted, c) multiple original employment tax returns filed for the same entity, or d) no corresponding W2 forms timely filed? All right. Let's go ahead and stop the polling now and let's share the correct response on the next slide. And the correct response folks is c)

multiple original employment tax returns filed for the same entity. And let's see what percentage of you responded correctly. Okay, folks, it looks like okay, looks like we have a correct response percentage rate of 56%. So Carolyn, Lloyd, can you explain to the audience a why the correct response is c, give us some clarification, please? Lloyd Kinlaw: Yeah, well all of these choices may be indicative of potential non-compliance or fraud, only one of these is a strong indicator of ID theft. And in this case it will be answer choice c because if we receive multiple original employment tax returns for the same entity, then a poser could possibly be trying to obtain a refund under the guise of a legitimate entity by having that refund directed toward to another address where they can intercept that refund check. Evette Davis: Okay, okay. Thank you so much for that explanation, Lloyd. Okay, folks, let's go ahead and jump to our next polling question. Which of the following is the strongest indicator that a business may be fictitious? Is it a) record of regular federal tax deposits, b) no W2 forms filed for $600,000 in wages reported on the Form 941 to claim the ERC, c) deduction for wages on the income tax return, or d) there's a history of timely filing employment tax returns? Which of those responses do you feel is correct?

Just take a moment to review the question and click the radio button that best answers the response, which of the following is the strongest indicator that a business may be fictitious; a, b, c or d? Let's go ahead and stop the polling now and see what the correct answer responses or the next response the correct response is on the next slide. Okay and the correct response folks is b) no W2 forms filed for $600,000 in wages reported on Form 941 to claim the ERC.

Alright, folks, we are rebounding here. It looks like 91% of you responded correctly. Woohoo, this is awesome. Okay, so now let's see here. Here is the last question for now. Audience, this is polling question number seven. Please select the answer that best is the best correct answer that you can indicate, okay. What is the statute of limitations to assess tax attributed or attributable to ERC that was reported fraudulently? What is the statute of limitation to assess tax attributable to the ERC that was reported fraudulently? Is it a) special five year statute of limitation, b) three year statute of limitations, c) no statute of limitations, or d) special 10 year statute of limitation? Take a moment, look at the question, look at the responses, and click the radio button that best answers the question. Give you just a few more quick seconds to make your selection. All right. And let's look at the correct response on the next slide. Okay, folks, looks like the correct response is c) no statute of limitations. Okay, this is awesome to see folks. We now have a correct response rate of 93%. This is excellent. Okay, Lloyd. I'm going to turn it over to you. Lloyd Kinlaw: Outstanding. Great job, attendees. All right. So now we're going to go into our final section of today's webinar and it is an important one. It is ways to report ERC fraud. We mentioned earlier that there have been many promotions and ads discussing ERC fraud. And I'm sure some of you have probably seen some of these ads, whether it's on social media, radio, television, email, direct mail, whatever method, there are quite a few individuals and companies out there who are pushing promos that misrepresent the Employee Retention Credit qualifications and requirements and, unfortunately, some of our taxpayers have fallen victim to some of these schemes. So, some of the things that you should look out for are unsolicited calls or advertisements that mention an easy application process when it comes to the Employee Retention Credit. There may be promoters out there who have predetermined Employee Retention Credit amounts, or they may promise that a company can determine the ERC eligibility within minutes, or through gaining little to no information about the employer. One thing that we're seeing amongst a lot of promoters that are pretty aggressive is that they will charge large upfront fees or they may charge fees that are based on a percentage of the Employee Retention Credit, that's a telltale sign that they may be involved or commandeering a potential scam. Also, we're seeing promoters that are telling businesses to claim the ERC because they have nothing to lose. As Carolyn discussed earlier, there are some serious consequences of falling victim to these scams.

The thing is when these victims when they solicit and fall victim to a lot of the promos, and claim the ERC credits on their tax return, the promoters will charge a large fee, so they will not see the entire amount of the refund that is recorded on the tax return, however, if that tax returns comes under examination then the IRS holds the employer responsible for repaying the entire amount of the credit, the excess credit that is shown on their return, and in addition to that, the employer may be liable for interest, and potentially they can be liable for penalties as well. But when it comes to penalties, it always depends on the facts and circumstances of each case. And also, there may be promoters telling businesses to ignore the advice of their trusted tax professional. And we're going to talk about some tips on knowing your clients and how important that is in circumventing becoming victims of ERC fraud. Carolyn is going to present that later. But we do want them to know that the IRS is aware of this activity and we are taking action based on our research but more importantly based on information provided by reputable taxpayers and practitioners such as you. IRS presenters have presented, have spoken at a number of Tax Forums, and a number of Practitioner Liaison Meetings. And what we're hearing is that practitioners are saying that they are gaining new clients, unfortunately, who have come under audit. And the unfortunate part is the fact that the taxpayers have come under audit. But we're hearing that some practitioners have had their clients who have been enticed by a lot of these promotions that are put out there by third parties and then of course, they come back to their normal preparer for representation in audits. So we want to give you some tips on how to avoid that and how to communicate with your clients to avoid falling victim to a lot of those aggressive marketing tactics that a lot of these promoters are using. The IRS taking proactive and reactive measures to combat ERC fraud. As I stated, very often our most valuable assets are taxpayers and practitioners. You are without a doubt our eyes and ears into potential and possible fraudulent lead that we sometimes would not know about otherwise. Evette Davis: Hey, Lloyd, excuse me. I do apologize for the interruption again. This is Evette. So we've got some great information that you're sharing. We want to make sure we get through all of this information and it is now the bottom of the hour. So we're going to have to move along in the presentation. I know you've got so much you want to share with everybody but just wanted to give you a heads up that it is now in the bottom of the hour and we want to get to their questions. Lloyd Kinlaw: Okay. And sounds we're really going to go to the next few slides pretty quickly. But I do just want to familiarize you with some of the forms that are available on our website to report ERC fraud. As we stated before, we are reaching out to our practitioners and the public to foster relationships that stands together to combat bad actors. What you see on your screen is a screenshot of the IRS web page that addresses suspected fraud. And when you visit our website, which is IRS.gov, in the search box, you can enter Report Suspected Fraud, and it should bring you to this page and this page will provide you live links to all the forms and instructions for reporting different types of schemes including ID theft, abusive tax promoters, abusive tax exempt organizations, and other basic non-compliance violations. Let's go to the next screen. So we have a Form 3949-A, which is an Information Referral and you can use this form to report any kind of fraud that may be perpetrated by an individual or business and you can either submit that form online or email it to the IRS.

And then the next slide will give you some examples of suspected non-compliance or fraud that is reportable using that form. And then, on the next slide, you'll see a Form 14242 and this is a form that you would use to report suspected abusive tax avoidance schemes, or tax return preparers who promotes such scheme. And this is a form that if you have a client or if you know of someone that was enticed to engage in some type of Employee Retention Credit scheme, this is a form that you would submit, and this one goes to our Lead Development Center, they will use the information that you provide to further develop and gather some information about the tax return preparer or the promoter that you are reporting. And they will build a case to determine if an investigation should be authorized. And the next slide gives you an example of some of the schemes that will be reportable and these are just examples. But the schemes could involve any type of tax item that is reportable on a tax return. And then finally, there is a form called 14157 that you can file against return preparers who may be engaging in some type of misconduct, or some type of violation of Circular 230. This form will be sent to our Return Preparer Office, and they will use that information to evaluate and determine the best course of action. And the next slide gives some examples of preparer complaints that individuals have reported to the Internal Revenue Service. And finally, there are some other resources that are available at our website, particularly with identity thefts. There's also information on how to report phishing and online scams that may be tax related. It's important to go ahead and visit our website for more information on how to report that to the Internal Revenue Service so that we can look into it further. All right, so, Evette, I believe it's time for our final round of polling questions and I think we only have one left. Evette Davis: Yes, it is. It is. People are having fun, so time is flying. Okay, audience. We only have one this time. This is our final polling question and here are the facts. A taxpayer has come to you for assistance. Another preparer convinced the taxpayer to file amended employment tax returns to claim ERC even though 100% of the PPP loan funds that were used to pay the wages were forgiven. The taxpayer provided you with the prepares email that states, the IRS now allows ERC for all wages paid with first draw PPP loans, even if the loan was forgiven. Your former preparer is incompetent. What is the best course of action to take? Is it a)

find the prior return preparer and settle the score, b) send the taxpayer back to the return preparer to amend the amended return, c) complete Form 14242, report suspected abusive tax promotions or preparers or d) complete Form 14157 Return Preparer Complaint and Form 14157 the affidavit? I know you all know the response to this, so going to give you a moment, click on the radio button that best answers this question. Give me just a couple more seconds for this one and now let's go ahead and stop the polling and we're going to share the correct response on the next slide. And folks, of course, the correct response is c) complete the Form 14242, report suspected abusive tax promotions or preparers. And folks, it looks like let's see what percentage of you responded correctly, it looks like 95% of you responded correctly. Woohoo. Okay. Now let's go ahead and turn the mic over to you, Carolyn. Carolyn Schenck: Thanks for that. Now we've come to the final section of today's webinar, which is an important one and it's know your client. We cannot over emphasize the significant role that you play in navigating your clients away from fraud landmines. Actions that you can take to shield your clients from schemes and scams can include communicating with your clients about new legislation, warn them of phishing schemes, offer consultation about too good to be true tax benefits, discussed the IRS Dirty Dozen that are heavily marketed and also advise them of potential consequences of falling victim to these schemes. Now, I know we kicked off this with a KYC slide and many of them many of you know that as a Know Your Customer slide, but I'm obviously using that today as Know Your Client. You know, taking actions to know your client will assist in meeting Circular 230 due diligence requirements and protect your practice and your clients. Now, we appreciate that many of you work extremely hard to know your client and we appreciate your due diligence. Now many of you who are viewing the webinar today, do prepare income tax returns. And like I said, we very much value the diligence that you take and our voluntary compliance system to get income tax returns filed timely, and that are accurate. Now, many of you who prepare income tax returns already require that your clients fill out organizers or something similar on an annual basis prior to preparing their income tax returns and we applaud you and encourage you to continue that practice. We encourage you to discuss the organizer with the client and also have the client sign the organizer. Now this ensures that there's full transparency with the item that are going on the return. And for those of you who are financial advisors or planners, we would encourage a similar practice of Know Your Client before you embark in a partnership on their financial journey. Circular 230 imposes obligations on practitioners who practice before the IRS. Practitioners have an obligation to exercise due diligence in preparing returns or other documents related to a federal tax matter and in determining the correctness of any oral or written representations made by the practitioner to the IRS. If during the course of engagement, the tax practitioner discovers that the client has not complied with the requirements of the code or has made any sort of an error, then he or she must promptly advise the client of such and the consequences of the non-compliance error or omission. And of course, concepts such as due diligence are of no surprise to many of you, who are operating under the parameters of Circular 230 and we recognize that. And I do believe that practitioners understand that they cannot be willfully blind or take it too good to be true attitude, or any advice at face value. At a recent presentation, I was told that the Office of Professional Responsibility, OPR, was approached by an enrolled agent who asked whether they could rely on an ERC analysis prepared by a CPA. And the answer was sorry, no, the credential alone doesn't make the advice reliable. Now, among other things, the CPAs fee arrangement could affect the reliability of their advice and further problematic was if that very CPA was among those who were indicted for running an ERC mill. Now on the slide now you have an alert that was issued by the Office of Professional Responsibility to address issues related to the Employee Retention Credit. This alert warns about third parties promoting improper Employee Retention Credit claims that provides guidance to ensure tax professionals are meeting their Circular 230 responsibilities and urges filers to carefully review the guidelines before trying to claim the credit, as promoters continue to push ineligible people to file. I would also encourage you to keep tabs on the OPR webpage at IRS.gov. Now as far as education and awareness, we would encourage those who are preparing income tax returns to continue to prepare them diligently and also to attend webinars such as this and other tax professional meetings and conferences. And we appreciate the attendance today at the webinar and we hope you found it informative and enlightening. And again, thank you very much. So I'm going to turn the presentation now over to Evette because I believe we have some questions queued up. Evette Davis: Yeah. Thank you, Carolyn, and thank you, Lloyd. Thank you so much. Okay, folks, this is me again, Evette Davis, and I'm going to moderate the Q and A session for you. But before we get started, I just want to take a moment to thank everyone for attending today's presentation on Employee Retention Credit presented by Office of Fraud Enforcement. Earlier we mentioned that we want to know what questions you have for our presenters and here's your opportunity. So if you haven't already put your questions in, there's still time, go ahead and click the drop down arrow next to the question field and type in your question and remember to hit send. Mr. Lloyd Kinlaw is staying on with us to answer your questions along with Ms. Carolyn Schenck with the National Fraud Counsel. One thing before we get started, folks, we may not have time to answer all the questions submitted but we're going to go ahead and get to as many as time will allow. So let's go ahead and get started with the very first question. All right, folks, this question states the following. My business client was required to shut down the workplace, but allowed its employees to continue working from home through a telework arrangement. Does my business client qualify and do they meet the full or partial suspension test? That's the question. Lloyd Kinlaw: Thanks, Evette. Yeah, in this case, no, because of the full or partial suspension test takes into consideration the business operations, and not the physical location of the business. So, if there's a mere deviation from the normal business practices, it doesn't necessarily qualify the employer for ERC. Now, if the business continues operating by some non-traditional method, then the business has not suspended its business operations, so it doesn't meet the requirements for this test. Evette Davis: Okay. All right. Very direct. Thank you, Lloyd. Next question, what can I expect in an examination of the ERC? Carolyn Schenck: I can take that question Evette. This is Carolyn. Okay. So for those of you who have represented clients in front of the Internal Revenue Service, you can expect the IRS to take some traditional steps that we see in typical examinations. Now a revenue agent will issue an information document request, which is an informal request, asking for documentation supporting the eligibility including any governmental orders that suspended the employer's business operations, any records the employer relied upon to determine whether a more than nominal portion of the operations were suspended due to the order, any records the employer used to determine if it had a potential or if it experienced a decline in gross receipts, any record showing that which employees received qualified wages and in what amounts, communications with employees or customers during this period of time, also looking for documentation supporting the amount of allocatable Qualified Health Plan expenses, any conclusion regarding the aggregation rules, copies of any completed Form 7200 that the employer submitted to the IRS, and also copies of any federal employment tax returns that may have been submitted. Now, if that information is not forthcoming in an informal basis, then the IRS may issue an administrative summons, requiring that information. There could be interviews conducted of the taxpayers or third parties or any tax return preparers are financial advisors. There's also internal and external research on the business or the government or being cited. As I said earlier, the government is going to be looking for substantiation that the entity was entitled to the credit. And so as a foundational matter, the IRS needs to understand the nature of the business, its size and how it was impacted.

You know, as far as how the business is impacted, for example, if there was a masking or social distance or contouring order, and that's what's being offered as support, but then the taxpayers employees could work from home, well, then really, the government would ask to evaluate if you were actually entitled to the credit in that scenario. However, in that particular scenario, if the taxpayer is running a factory with a production line, then maybe it is more appropriate than in that circumstance to have claimed the credit. So let me also lay out a particularly egregious fact pattern that we've seen. We've seen a situation a couple of times where the taxpayer has increased its labor a six fold, so it's increased like 2000 employees, and it's brought similar increases in gross receipts during the COVID period of time, but yet it claimed 33 million in credits. Now this safety net was not entitled for scenarios like this. As Lloyd mentioned earlier in the presentation, the ERC was enacted for businesses, employers who continued paying employees during the shutdown due to the COVID-19 pandemic, or who experienced declines in gross receipts from March 13, 2020 to December 31 of 2021. Now, the bottom line is, we're advising you to be prepared for the question of how did COVID impact your business. And remember, COVID impacted everybody. Now, this is not a COVID is terrible party payment. Everybody was impacted by COVID and based on the eligibility rules set by Congress, you should interpret this to mean that not everybody is going to get a payment as a result. Thanks for that. Evette Davis: All right. Thank you, Carolyn. Thank you so very much for that detailed information. Let's go to the next question.

We've got a few more minutes so we're going to try to get through as many questions as we possibly can. All right, folks. So the next question is my business client realized they got involved with an unscrupulous firm that convinced them to claim the ERC. They received a check for the amended return but have not deposited the money or cashed it, what should they do? Lloyd Kinlaw: I think I can take that question. It's a good thing that the taxpayer did not cashed the check but if they have determined that they are not entitled to it, and they did get involved with an unscrupulous promoter, the best course of action is to take if they have if they are near a Taxpayer Assistance Center, the best thing to do is to take that check to a Taxpayer Assistance Center, and explain the situation to the IRS employee and let them know that you want to return the check and also submit an amended return. That way that employee what documents the taxpayer's intent, and get that to the appropriate unit. If they're not near a Taxpayer Assistance Center, then the best thing to do is to return that check to the IRS service center that is designated for that particular taxpayer. And I would definitely send it by some type of traceable mail so they'll have the documentation and some type of record that they returned that check to the Internal Revenue Service. Evette Davis: That's good. That's good. So let's stay right there along those same lines, okay, with this next question. So if a client falls prey to an abusive ERC promoter and reported ERC for which they don't qualify, is there a settlement initiative or some type of voluntary disclosure program available for them? After all ERC does top the IRS Dirty Dozen list? Carolyn Schenck: I can take that question, Evette. Little bit drilling. Currently there is no ERC specific settlement program. Taxpayers should come into compliance through filing amended returns or as an AAR as discussed in the notice or if there is criminal exposure, then a taxpayer should come into the services' long standing Voluntary Disclosure Practice. Let me talk a little bit about the Voluntary Disclosure Practice. This provides a way for taxpayers with previously undisclosed income to contact the IRS to resolve their tax matters. This program does not apply to taxpayers whose income is derived from illegal activities and this practice is administered by a Criminal Investigation Division. Now a voluntary disclosure occurs when you provide a truthful, timely and complete disclosure to CI through designated procedures and I would encourage you to look at IRS.gov because there are some specific things that you must do. There's a form that has to be filled out and it has two parts to that form. Its Form 14457, you fill out the first part of that, and then you receive a preclearance back. And then once you receive the preclearance, then you fill out the second part of the form. Once the second part of the form is received and processed, if the case is accepted, then the case is sent to the civil field for a regular examination. So those are the ways that a taxpayer can come into compliance. Evette Davis: Awesome, awesome. Thank you, Carolyn. Okay, so this question is asked a lot. Considering that the IRS is backlogged in processing amended employment tax returns, can their client file a Form 7200 to request payment in advance? Carolyn Schenck: Sure, I can take that. Thanks, Evette. So the provisions to request and receive an advance payment of COVID-19 employer credits are no longer available. The provision was put into place to get funds quickly to businesses prior to the due date of employment tax returns during the period that the pandemic peaked. Now that we've passed that peak, the Form 7200 is now obsolete, and the IRS is no longer issuing advanced payments related to the ERC. Evette Davis: Okay, okay, that's good. That's good. All right, trying to get a couple more questions in here. So this one is, how can I get the status of information I submit to the IRS about a fraudulent scheme related to the ERC? Carolyn Schenck: I can take that one. So Lloyd, you want to I got it. No, you go ahead. Lloyd Kinlaw: Okay, guys, just start off and Carolyn, I'll let you go ahead and pick the ball from where I ended. But the IRS is generally prohibited from disclosing any kind of information to persons outside of the IRS and also within the IRS unless it's on a need to know basis and that means that we cannot advise the person that is submitting information about another person about what we're doing, what actions we take or if we even plan to take any action with the information that you send, and there is IRC code section 6103 and that was enacted to protect taxpayers privacy, and protect their information from disclosure to other parties. And I know you may be wondering, hey, listen, I'm the person that's submitted the information, why can't you discuss that information with me? Well, that's just an act of an extra protective measures that we take to ensure that the taxpayers information is protected. We have to go by the assumption that the taxpayer is innocent until proven guilty and we cannot disclose any kind of information or any kind of activity that we're taking with that taxpayers account. And Carolyn, do you have anything to add that? Evette Davis: Folks, I want to apologize. I am so sorry. That was great disclosure, it is high on our priority list, so that is great, great, great. Thank you so very much. I appreciate you both but that's all the time we have for questions. I want to thank you both for your knowledge and your expertise and for answering the questions. Do you have any key points that you want to share quickly with our audience before we start wrapping it up? Lloyd Kinlaw: Yeah, I think I'll go ahead and wrap this up quickly. I think the main point that I want to leave everyone here with is that make sure that you are not taking any kind of double benefit for the qualified wages that are used for Employee Retention Credit. If you're using those qualified wages to report Employee Retention Credits, that pretty much disqualifies you from obtaining any type of other benefit, whether it's a tax benefit, any kind of PPP loans benefits and but also if you use those qualified wages for PPP loans and they were forgiven, then you're not entitled to the Employee Retention Credit. In addition to that, there's also a stretch of five year statute of limitations that applies to the Employee Retention Credit that were reported for third and fourth quarters of 2021 and that does not extend the time to claim the Employee Retention Credit, it only applies to the assessment of tax that is related to the Employee Retention Credit. There is a lot of information that is available with regard to the technicalities related to the Employee Retention Credit, but also there are alerts and guidance for how to report the Employee Retention Credit fraud if you should encounter it at our website.

So please be sure that you visit it and just keep in mind that we have multiple units and divisions and offices within the Internal Revenue Service that are actively addressing Employee Retention Credit non-compliance and fraud. So I believe that is about it. Ladies and gentlemen, thank you so much. We can't thank you enough for joining today's ERC webinar. Evette Davis: Awesome. Awesome. Thank you so much to Lloyd. Thank you to Carolyn. Thank you to Tom as well.

Audience we are planning additional webinars throughout the year. So just look to our website IRS.gov, type in keyword search webinars and to look whether you want to see webinars from tax professionals or small businesses. Where appropriate, we will be offering certificates and CE credits for those webinars. Please, we invite you to visit our video portal at www.irsvideos.gov.

Another big thank you to Lloyd and Carolyn for a great webinar and for sharing their expertise. I also want to thank you our attendees for attending today's webinar, Employee Retention Credit presented by the Office of Fraud Enforcement. If you attended today's webinar for at least 100 minutes after the official start time, you will receive a certificate of completion that you can use with your credentialing organization for two possible CE credits. If you stayed on for at least 50 minutes from the official start time you will qualify for one possible CE credits. Again, the time we spent chatting before the webinar started does not count towards the 100 or 50 minutes. If you're eligible for continuing education from the IRS and you use your valid PTIN to register, your credit is going to be posted in your PTIN Account. If you're eligible for continuing education credit from California Tax Education Counsel, your credit will be posted to your CTEC Account as well. If you qualify and you've not received your certificate and/or credit by August 29, just send us an email at cl.sl.web.conference.team@irs.gov. The email addresses on the slide as well. And if you're interested in finding your local stakeholder liaison, you can just send us an email at the same address that I just mentioned and we will get that information to you. We would appreciate it if you take a few minutes to complete a short evaluation before you exit and if you want to have more sessions like this one or you have another topic just let us know. If you have thoughts on how we can make them better, please let us know that as well. If you have any suggestions for future webinar topics, or pertinent information you'd like to see in perhaps an IRS Fact Sheet, Tax Tip, or FAQ, on IRS.gov, then please include your suggestion in the comments section of the survey. Click the survey button on the bottom right side of your screen to begin.

If it doesn't come up, check to make sure you disabled your pop up blocker. It's been a pleasure to be here with you today, folks, and on behalf of the Internal Revenue Service and our speakers, we would like to say thank you for attending today's webinar. It's so important for the IRS to stay connected with the tax professional community, individual taxpayer, industry associations, along with the federal, state and local government organizations. You make our jobs a lot easier by sharing the information that allows for proper tax reporting. Thanks so much again for your time and attendance. We wish you so much success in your business or practice. You may exit the webinar at this time.