Employee Retention Credit (ERC) mill scams

What it is

A company or individual, sometimes calling itself an “ERC specialist,” sometimes operating as a credit repair or tax-prep business on the side, offers to file an Employee Retention Credit claim for a business, for a cut of whatever refund comes back. The Employee Retention Credit itself was real: a refundable payroll tax credit Congress created in the CARES Act to help businesses keep employees on payroll during the COVID-19 pandemic, worth up to 70% of wages per employee per quarter by 2021.

The scam is not the credit. It is the claim. A promoter tells a business “everyone qualifies,” skips any real eligibility review, and either invents the disruption that would have made the business eligible or, in the most extreme documented cases, invents the business itself, filing for a company that “lacked any employees or operations,” in the words of one federal indictment. The IRS pays the refund up front, before the claim is reviewed in detail. The promoter has already been paid. Years later, when the IRS audits, the business, not the promoter, owes the money back, with interest and penalties.

How it actually works

1. The pitch

   A cold call, a direct-mail flyer, or a search ad promises a refund “in weeks” for a payroll tax credit the business has “definitely” earned, often from a promoter with no prior relationship to the business and no accounting credential.

2. No real eligibility review

   The IRS’s own warning signs include promoters who claim they can determine eligibility “within minutes,” who cite general OSHA or CDC guidance as if it were a qualifying government shutdown order, or who never produce a written memo explaining why the business actually qualifies.

3. The contingency fee

   Payment is a percentage of the claimed credit, commonly cited in IRS guidance as 15% to 30%, collected once the claim is filed or the refund arrives, regardless of whether the IRS later disallows it.

   Where it could have stopped

   The IRS lists a “nothing to lose” contingency-fee pitch, with no written eligibility determination, as one of its clearest Dirty Dozen warning signs. A legitimate preparer documents why a business qualifies before filing, not after being paid to file anyway.

4. Inflated, backdated, or invented claims

   Real cases range from exaggerating a genuine but partial business disruption into a full-quarter claim, to filing for businesses that, as one federal case put it, “lacked any employees or operations” for the sole purpose of claiming the credit.

5. The refund lands

   The US Treasury pays the claimed amount directly into the business’s account, sometimes tens of thousands of dollars, sometimes far more, before the underlying claim has been closely reviewed.

6. The IRS starts asking questions

   The IRS has sent more than 28,000 disallowance letters and, in a single 2024 sweep, up to 30,000 recapture letters addressing more than $1 billion in claims it now considers improper.

7. The business owes it back

   Recapture and audit findings are addressed to the business that received the refund, not the promoter who filed it and already kept the fee. Repayment can come with a 20% accuracy penalty, or up to 75% for fraud, plus interest.

8. Enforcement, sometimes years later

   IRS-Criminal Investigation has opened more than 400 criminal cases covering roughly $7 billion in claims. The most serious promoter cases have produced sentences ranging from about four to eighteen years in federal prison.

Why it works

The credit itself was real, which lends the pitch instant credibility. Unlike a scheme built on a fictional program, an ERC promoter is selling access to a genuine, well-publicized federal tax credit, making “you definitely qualify” sound like good news rather than a red flag.

The eligibility rules were genuinely complex. Whether a business qualified could turn on a partial government shutdown order, a specific supply-chain disruption, or a quarter-by-quarter revenue test, complicated enough that a business owner without a tax background had every reason to trust a self-described specialist’s judgment.

The refund arrives before the claim is checked. The IRS paid claims quickly during the program’s peak to get relief money to businesses fast, which also meant a fraudulent claim could clear and be spent long before any review caught it.

The fee structure removes the appearance of risk. A contingency fee, paid only if a refund comes through, makes the pitch sound like it has no downside, when the actual downside, a multi-year audit and full repayment with penalties, falls entirely on the business, not the promoter.

And the promoter’s incentive is volume, not accuracy. A percentage-of-refund fee rewards filing as many large claims as possible, as fast as possible, which is exactly the pattern IRS Criminal Investigation found in the largest prosecuted cases, some running thousands of claims through a single operation.

Where it comes from

Entirely domestic, and built directly on top of a genuine, well-known federal program rather than a fabricated one.

A cottage industry formed during 2021 and 2022 once the ERC’s rules loosened and its value rose to 70% of wages per employee per quarter, with promoters flooding phone lines, mailboxes and search results with “no risk, guaranteed” pitches, prompting the IRS to place ERC claims at the top of its 2023 “Dirty Dozen” list of tax scams and to impose a moratorium on new claims that September.

Operations range from a single filer running shell businesses to organized, multi-defendant rings. One Louisiana case involved a single operator filing for dozens of nonexistent companies; a Kingsport, Tennessee case involved three co-defendants running at least eleven sham businesses together; the largest documented case, out of Long Island, New York, charged seven defendants who filed more than 8,000 payroll tax returns through what the indictment describes as a “purported credit repair business.”

Enforcement is a mix of civil recovery and criminal prosecution. IRS-Criminal Investigation, the Treasury Inspector General for Tax Administration and the Justice Department’s Tax Division have run the criminal cases; the IRS itself has separately pursued disallowance letters, recapture letters and a Voluntary Disclosure Program aimed at businesses that want to come forward before an audit starts.

And the money moves through the same channel the credit was designed to use. There is no offshore network or cryptocurrency exchange in any of the documented cases here, proceeds went to shell businesses’ US bank accounts, and from there into luxury vehicles, jewelry, casino gambling and mortgage payments, all traceable through ordinary US financial records.

Real cases

Red flags

• A promoter who says “every business qualifies” or that eligibility can be determined “within minutes,” with no written analysis.
• A contingency fee, commonly 15% to 30% of the claimed credit, pitched as risk-free, with no explanation of who bears the risk if the IRS later disallows the claim.
• Cold outreach, an unsolicited call, mailer or ad from a company with no prior relationship to the business.
• Eligibility based on general guidance, citing OSHA or CDC recommendations, or supply-chain issues alone, rather than a specific government order that actually suspended operations.
• A claim for the entire year or every quarter, when the business’s actual disruption, if any, was partial or short-lived.
• Refusal to produce a written eligibility memo or the underlying calculations behind the claimed credit.
• Pressure to file quickly before a supposed deadline, without time to have the claim reviewed by the business’s own accountant.

If it’s happening to you

If you have not yet filed a claim through a promoter making these promises, stop and get an independent review from your own accountant or tax attorney before signing anything.

1. If you already filed and have not yet received a refund, the IRS has periodically allowed businesses to withdraw an unpaid ERC claim as if it had never been filed, with no penalties or interest, check directly with the IRS or a tax professional for the program’s current status.
2. If you received a refund you now believe was improper, the IRS has periodically run a Voluntary Disclosure Program letting businesses repay at a discount, before an audit starts, to avoid penalties and interest, again, check its current availability rather than assuming it remains open.
3. If you receive a disallowance or recapture letter, respond by its deadline. Ignoring it does not make the claim go away and forecloses options that are only available if you respond promptly.
4. Get a second, independent opinion on your original eligibility determination, ideally from a licensed CPA or tax attorney with no financial stake in whether the credit was proper.
5. Keep every document the original promoter gave you, including any eligibility memo, engagement letter, and fee agreement. If the promoter’s conduct was itself fraudulent, this becomes evidence.
6. Report a promoter you believe acted fraudulently to the IRS using Form 14242, and to the Treasury Inspector General for Tax Administration. See where to report for other countries.

Where the money goes

Almost entirely domestic, moving from the US Treasury to a US business bank account, then to whoever controls it, no offshore network, no cryptocurrency exchange, in any of the documented cases here.

The contingency fee goes straight to the promoter, deducted or billed the moment the refund clears, money that is not recoverable by the business later, even if the claim itself is disallowed. The rest of the refund is spent, invested, or banked by the business, or in the most fraudulent cases, funneled by the promoter into luxury vehicles, jewelry and casino gambling through shell businesses set up for the sole purpose of receiving the check. Because the fraud happens inside the tax system itself rather than through a separate laundering chain, the recovery mechanism is also built into that system: audits, disallowance and recapture letters, restitution orders, and, for the most serious promoters, criminal forfeiture.

By the numbers

No published dataset breaks this scheme out as its own category yet, so there is no chart to show. The data page explains which agency categories exist and why some schemes are invisible in official statistics.