AI Joins the Fight Against Fraudulent ERC Claims

Get ready, folks - the IRS is about to level up their ERC audit game with the help of our friendly neighborhood AI! Darren Guillot, the former IRS deputy commissioner, just dropped a bombshell: the IRS is unleashing artificial intelligence to sniff out potentially fraudulent Employee Retention Credit (ERC) claims.

For those playing along at home, let's recap the two legit ways to qualify for the ERC:

1. Show a gross decline in receipts, or

2. Prove that government shutdown orders reduced your business's ability to provide goods/services by at least 10% (this could be a full or partial suspension)
   

Picture this: a restaurant is ordered to limit capacity to 50% in their dining room. They're still slinging dishes, but with a serious handicap. Even if their gross receipts don't dip by 50%, they could still qualify for the ERC due to the partial shutdown cramping their style.

Now, the gross receipts test is pretty cut and dry - you either make the cut or you don't. But the real head-scratcher is navigating the shutdown order route. To claim the ERC on this basis, you better have receipts showing a clear link between a specific government order and the impact on your business.

Here's a cautionary tale: an ex-client of mine decided to go rogue and work with a third party to claim a whopping $1M ERC after I warned them they didn't qualify. As their trusty tax pro, I needed to prep those amended returns, so I asked for evidence supporting their claim. We already knew the gross receipts test was a no-go, so it all hinged on the suspension argument.

I told them, "Show me the exact government orders that affected your business for every quarter you're claiming the ERC." Their response? "That's impossible! Who could even do that?" I made it crystal clear - if they wanted me to file those returns and have a prayer of surviving an audit, they needed to pony up the proof.

Fast forward to today, and it looks like AI is swooping in to save the day (or ruin it, depending on your perspective). This high-tech tool will be combing through zip codes, matching local shutdown orders with the zip codes on 941-X forms from businesses that claimed the ERC. Sneaky!

Oh, and let's not forget - the IRS has a whole extra two years to audit ERC claims, thanks to the extended statute. If you think you might have received the ERC by mistake, there's still time to make things right and give that money back.

The moral of the story? If you're going to claim the ERC, make sure you've got all your ducks in a row. And if AI comes knocking on your door, you better hope your paperwork is airtight!