Employee Retention Credit Fraud: False Payroll, Shell Businesses and Promoter Evidence

Insiders who report employee retention credit fraud can show invented employees, unpaid wages claimed as payroll or a business that never operated. We help them bring that evidence to the IRS whistleblower program. Someone inside payroll knows who actually worked and what the business paid. Someone inside a promoter’s office may know who supplied the figures that reached the return.

This page follows the false payroll, shell businesses and promoter decisions behind employee retention credit claims. The broader employment and payroll tax fraud patterns also include wages concealed from tax reporting and withheld taxes that never reach Treasury.

What an Employee Retention Credit Claim Has to Match

An employee retention credit claim connects a particular employer, wage period and eligibility basis to wages actually paid. The program encouraged businesses to keep employees on payroll during the pandemic. False payroll takes taxpayer money meant to keep real employees on the books.

The historical eligibility routes included a qualifying government-order suspension, a decline in gross receipts and, for the later periods, recovery startup businesses. The ordinary credit ended after the third quarter of 2021, with the fourth quarter generally reserved for qualifying recovery startups. For an insider, the business’s operations during the claimed period matter more than the date a promoter began selling the service.

A shutdown claim points to the order, the operations it affected and the period it covered. The Treasury’s Financial Crimes Enforcement Network described orders limiting commerce, travel or group meetings and a full or partial suspension of operations. Where a promoter used supply-chain disruption as the explanation, we examine the asserted order and its connection to the employer’s operations. A gross-receipts claim instead points to the business’s receipts for the relevant comparison.

Payroll registers record the pay run, bank records show wage payments, Forms W-2 report employees’ wages and withholding, and Form 941 reports quarterly employment-tax information, including wages and employee counts. The preparer’s worksheet connects the claimed credit to the inputs used to calculate it. Reading those records together can show where the claim acquired workers or wages the business never had.

An operating business can also claim wages that do not qualify. For large employers’ 2020 claims, the credit generally covered wages paid for time employees were not providing services. A payroll employee may know whether the claimed wages covered time worked or time away from work.

The same wage allocation also matters across relief programs. Wages counted toward Paycheck Protection Program loan forgiveness cannot also support employee retention credit, as the Financial Crimes Enforcement Network’s November 2023 alert explains. The useful comparison is the payroll assigned to each benefit, alongside the underlying payments and returns.

Shell Businesses With Payroll on Paper

An ERC promoter can use businesses with no employees to support false Forms 941 claiming pandemic credits. The Financial Crimes Enforcement Network described fabricated businesses and dormant entities whose tax identification numbers survived long periods without activity. The company name and tax number supplied an identity for the claim. The payroll history supplied a different test of whether the supposed employer had anything to retain.

Credit Reset Me Inc. was a purported credit repair business in New York. The criminal indictment involving its owner and other participants charged that a pandemic-credit operation ran primarily out of Credit Reset. The indictment described more than 8,000 false quarterly returns. Many of the supposed employers allegedly lacked operations, employees, prior tax filings, a physical business location or timely wage statements.

The indictment alleged that participants sometimes supplied clients with a business that already had a tax identification number, or helped them buy one. Those businesses were often shells or companies that had stopped operating. We see a retention claim built around a purchased employer. In the indictment’s telling, the employer came with the credit.

The charging document tied the refund requests directly to knowledge about the payroll:

For someone who handled the business’s payroll, the important connection is between the wage payments, the claimed quarter and the person who supplied the return figures. A company record can identify the entity. The payroll record tests the wages claimed in its name.

ERC Promoters Who Controlled the Calculation

ERC promoter evidence includes the eligibility explanation, the calculation, the preparation history and the fee arrangement. The Financial Crimes Enforcement Network described promoters who used official-looking mail, direct calls and advertising to sell claims without evaluating whether the business qualified. Some withheld the eligibility analysis and computations from the business owner, avoided signing the return they prepared, or charged fees tied to the expected credit.

A promoter employee may have seen the sales promise before anyone reviewed payroll, the figures entered into the worksheet and the instructions given to the person signing the return. A refund calculation is much more revealing when the person who made it can explain where its inputs came from.

The Credit Reset indictment charged that participants created and sometimes shared accounts in tax-preparation software, concealed their paid-preparer roles on returns and collected preparation fees or a percentage of refunds. They also allegedly received part of the fees paid by clients they recruited.

One example in the indictment involved three tax-preparation software accounts used to prepare and file 22 false Forms 941 for the benefit of one person. Those returns allegedly claimed approximately $1.43 million in refunds for businesses under that person’s control and used the same wages for employee retention credit and leave credits.

According to the indictment, the owner sent messages describing false statements clients should give when asking about refunds, and another participant passed those instructions along. For an employee who received such a message, the words can connect the person directing the response to the facts already entered on the return.

FinCEN also identified claims submitted without a business’s knowledge or using stolen information. Its account included both knowing and unwitting businesses drawn into promoter schemes. The person who recruited the client, the person who supplied the payroll and the person whose name appears on the return may have different accounts of how the claim began.

The Claimed Amount and the Refund Paid

The ERC claimed amount and the refund paid describe different parts of a criminal case. In the Delaware criminal case, the Justice Department reported that a Philadelphia promoter recruited people with nonoperating entities or entities without qualifying pandemic-period employees and knowingly submitted false Forms 941. Those returns requested more than $20 million. The IRS paid more than $1.6 million.

For a payroll insider, the question is which entity employed the workers, during which period, and where the wages went. The check shows payment. The payroll and eligibility records explain the claim behind it.

The Financial Crimes Enforcement Network’s alert adds the bank’s view. It identifies deposits into accounts with no payroll history, accounts with no regular business transactions, and dormant accounts suddenly receiving an employee retention credit check as indicators worth examining. It also describes money moving through payment services, into other accounts or out as cash after a refund arrives.

The alert described the tax quarter and associated return form printed on the Treasury check. Those identifiers connect the payment to the return behind it. An insider who knows who controlled the receiving account may be able to explain the next transaction as well as the original claim.

ERC and Paid Sick Leave Credits in a Mixed Indictment

The Credit Reset indictment alleged more than $600 million in fraudulent requests for COVID-related tax credits and approximately $45 million disbursed by Treasury. Its mixed-credit scheme included ERC and paid sick leave credits as well as family leave credits.

The indictment also alleged specific ways the calculations overlapped. Some returns claimed sick and family leave credits exceeding the wages reported, listed the same wages as both sick leave and family leave wages, or claimed those leave credits and employee retention credit on the same wages. For a preparer-side witness, the worksheet can show where the wage allocation changed and which calculation reached the return.

A separate New Jersey criminal indictment announced in April 2024 likewise concerned employee retention credit and paid sick and family leave credits together. The indictment charged that a tax preparer sought more than $150 million through false returns and that at least $40 million went to clients.

The Financial Crimes Enforcement Network’s account of the earlier criminal complaint against the New Jersey preparer described the sales pitch behind the claims. The complaint alleged that the preparer told clients they qualified simply because they had a business, then submitted forms without consulting them that overstated employees and wages. For someone inside that practice, the difference between the client’s actual payroll and the figures entered by the preparer would be central to explaining the claim.

What Evidence Is Needed to Report Employee Retention Credit Fraud?

Evidence of employee retention credit fraud connects the employer and claimed quarter to actual operations, workers, wage payments and the people who built the claim. An insider’s account explains how those records came together and who knew the underlying facts.

The Credit Reset indictment alleged that, when the IRS and Social Security Administration sought additional information, participants responded with false information and filed false Forms W-2 corresponding to the earlier false Forms 941. In that allegation, a later wage statement supplied support for an earlier invented payroll. The documents agreed because the second set repeated the first.

We therefore examine when a document was created, what it was based on and who supplied its figures. An original payroll register, an actual wage payment and a later return-preparation worksheet may show different stages of the same claim. An employee who saw the worksheet change can explain why the final figures differ from the business’s ordinary records.

Payroll staff may know the pay runs and employees. Promoter staff may know the customer intake, the calculations and the instructions sent to clients. Finance staff may know the refunds received and the fees paid out. These are different views of the transaction, and we work with the person who can connect their own view to specific records and decisions.

Our tax fraud evidence review includes how and when you learned the facts and where supporting records are held. If you know who holds a relevant record without having it yourself, that knowledge belongs in the conversation too. We build the case with you and bring in tax whistleblower lawyers who know employment-credit fraud.

Reporting Employee Retention Credit Fraud Through the IRS

We help insiders report employee retention credit fraud through the IRS tax whistleblower process. That work includes the Form 211 award claim, which we prepare with you. We connect the taxpayer, payroll periods, return figures and your firsthand knowledge so the claimed violation can be examined as a specific transaction.

The federal False Claims Act excludes claims under the Internal Revenue Code, including employee retention credit. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Qualifying IRS whistleblower rewards follow the same range under a separate program, based on money the IRS collects because of the information. We work through the tax award claim with you, keeping the evidence and the contribution it makes at the center of the case.

You Know Who Was on the Payroll

If the employees, wages or operations behind an employee retention credit claim were invented, speak with our whistleblower experts about what you saw. We connect the payroll, promoter instructions and refund trail to build your strongest tax whistleblower claim, and bring in tax fraud whistleblower lawyers who understand employment-credit schemes. We stay beside you from the first conversation through the work of pursuing that claim.