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Renewed Warning, Criminal Charges against Fraudulent ERC Promotors

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Renewed Warning, Criminal Charges against Fraudulent ERC Promotors


Renewed Warning, Criminal Charges against Fraudulent ERC Promotors

On February 1, 2023, a federal grand jury in Salt Lake City, Utah returned an indictment against Zachary Bassett, Mason Warr, and their firm COS Accounting & Tax LLC d/b/a 1099 Tax Pros. Each defendant faces twenty-five criminal counts for actions relating to claiming the Employee Retention Credit (ERC) on behalf of their clients. This indictment represents the first criminal charges filed against an ERC promotor.

Mr. Bassett and Mr. Warr have been charged with conspiracy to defraud the United States, wire fraud and aiding and assisting the filing of false tax returns. According to a news release from the U.S. Department of Justice, Mr. Bassett, Mr. Warr and COS Accounting prepared and submitted more than a thousand Forms 941 (employer’s quarterly federal tax return) and Forms 7200 (advance payment of employer credits due to COVID-19), claiming in excess of $11 million in purportedly false and fraudulent employee retention credits and sick and family leave wages credits over a 16-month period.

The defendants allegedly solicited single member LLCs, including independent contractors, rideshare drivers, sole proprietors, and other Form 1099 workers to convert their businesses into LLCs taxed as S corporations in order to claim the ERC. Prosecutors also allege the defendants claimed the maximum allowable wage per employee, regardless of whether such wage was actually paid.

The indictment states the defendants listed the spouses of married owners of the single member LLCs as employees to increase the amount of ERC, even when the spouse was not actually an employee of the business. Further, the defendants claimed sick and family leave wages regardless of whether or not an employee had qualifying sick or family leave events. Lastly, the Justice Department accused the defendants of signing their clients’ name on some returns.

In the aftermath of these charges, the IRS issued a renewed warning to taxpayers on March 7, 2023, urging them to carefully review the ERC guidelines before claiming the credit and to be wary of third-party firms aggressively promoting the credit. The IRS listed common characteristics of questionable ERC promoters, including:

  • Charging large upfront or contingent fees
  • Providing opinions with little or no legal and factual analysis
  • Disclaiming they are providing tax advice
  • Failing to inform taxpayers that wage deductions on income tax returns must be reduced by the amount of the credit, likely necessitating an amended return

More than ever, taxpayers should be especially wary of utilizing questionable ERC promotors. Further, any taxpayer who has used a third-party firm should review the facts of the DOJ case and IRS warnings to ensure their claim was properly substantiated.



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