ERC Criminal Defense Attorney

The Statutes Behind ERC Criminal Prosecutions

Five federal statutes drive criminal ERC enforcement. Each one has a different mens rea standard, a different maximum sentence, and a different defense profile.

IRC §7206(1) — False Return (Up to 3 Years per Count)

Section 7206(1) makes it a felony to “willfully” make or subscribe any return, statement, or other document that contains or is verified by a written declaration made under penalties of perjury, when the document is materially false. For ERC purposes, the Form 941-X amended quarterly return that claimed the credit is the document under analysis.

The willfulness element under Cheek v. United States, 498 U.S. 192 (1991), requires the government to prove the defendant knew of the legal duty and voluntarily and intentionally violated it. A good-faith belief that the return was correct — even if mistaken — defeats willfulness. The defense in many ERC §7206(1) cases turns on what the taxpayer was told by the preparer or ERC mill, what eligibility documentation existed at filing, and what the taxpayer’s actual state of mind was when signing the amended return.

Maximum sentence: 3 years per count. ERC cases often involve multiple amended returns (one per quarter claimed), each potentially a separate count. The aggregation can produce substantial sentencing exposure even when each individual count is at the lower end of the statutory range.

IRC §7206(2) — Aiding and Abetting False Return (Up to 3 Years per Count)

Section 7206(2) is the principal vehicle for prosecuting ERC promoters and mill operators. The statute reaches anyone who “willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter.”

The §7206(2) defense is structurally different from the §7206(1) defense. The §7206(2) defendant is the preparer or promoter, not the taxpayer. The good-faith defense focuses on whether the preparer believed in the eligibility theories they sold to clients — not whether the clients themselves had any independent good-faith basis. ERC mills marketing aggressive eligibility theories to thousands of clients have substantial §7206(2) exposure even when individual client filings would not support §7206(1) cases against the clients.

IRC §7201 — Tax Evasion (Up to 5 Years per Count)

Section 7201 is the most serious tax-criminal statute — felony tax evasion with a maximum sentence of five years per count. The statutory elements: a tax deficiency, an affirmative act of evasion, and willfulness.

For ERC purposes, §7201 typically arises when a taxpayer who fraudulently claimed ERC also took additional affirmative steps to evade detection — concealing the underlying business activities that would have disproven the eligibility claim, creating false documentation to support fictitious wage payments, or restructuring the business to obscure the relationship between the entity that received the ERC refund and the entity that operated the actual business.

The §7201 affirmative-act requirement is what distinguishes the statute from a §7206(1) false-return charge. A taxpayer who simply files a false return faces §7206(1) exposure. A taxpayer who additionally takes steps to evade the IRS’s discovery of the falseness faces §7201 exposure. The latter is substantially more serious.

18 U.S.C. §286 — Conspiracy to Defraud the Government (Up to 10 Years)

Section 286 is the principal DOJ-side criminal statute for prosecuting fraud against the government with respect to claims. The statutory text reaches anyone who “enters into any agreement, combination, or conspiracy to defraud the United States, or any department or agency thereof, by obtaining or aiding to obtain the payment or allowance of any false, fictitious, or fraudulent claim.”

The ERC fits squarely within §286’s scope because the ERC is a refundable tax credit — a payment from the federal government. Filing a fraudulent ERC claim is, by §286’s logic, attempting to obtain a fraudulent payment from a federal agency.

The conspiracy requirement is what extends §286’s reach to ERC mills. A promoter who files thousands of aggressive ERC claims with multiple clients, often coordinating with marketing partners, document-preparation contractors, and back-office processors, is exactly the kind of multi-party arrangement §286 was designed to reach. Maximum sentence: 10 years per count — substantially more than §7206 or §7201.

18 U.S.C. §287 — False Claims to a Federal Agency (Up to 5 Years per Count)

Section 287 makes it a felony to make or present a false, fictitious, or fraudulent claim against a federal department or agency. It does not require the conspiracy element of §286, which means it can be charged against single defendants without the multi-party predicate.

For an ERC claim that the taxpayer knew was false at filing, §287 is the direct statutory match. The §287 case is structurally simpler than the §286 case but carries a lower maximum (5 years per count vs. 10 years). DOJ Tax Division has been bringing §287 cases against individual ERC claimants and §286 cases against multi-party promoter operations.

The False Claims Act — Treble Damages and the Qui Tam Relator Problem

The civil False Claims Act under 31 U.S.C. §3729 imposes treble damages plus per-claim penalties of approximately $13,946 to $27,894 per false claim (current 2025 inflation-adjusted range), in addition to any criminal exposure. The qui tam provisions allow private relators — typically former employees, competitors, or whistleblowers — to file FCA suits on behalf of the government and share in any recovery.

The FCA is the most dangerous civil enforcement tool in the ERC space because the per-claim penalty structure can produce judgments that dwarf the underlying credit amount. Consider a business that filed 8 quarterly Form 941-X amendments to claim ERC totaling $400,000 in credits. Under the FCA, each of those 8 amendments is a separate “claim.” Treble damages on the $400K plus 8 × ~$27K maximum penalty per claim produces a potential judgment of $1.2M + $223K = $1.42 million on a $400K credit.

The qui tam relator structure makes the FCA exponentially more dangerous. Anyone with non-public information about ERC fraud — a former employee of the business who knew the qualification claim was false, a CPA who saw the underlying books, an ERC mill insider who knows the promoter’s eligibility theory was reckless — can file a sealed qui tam suit under 31 U.S.C. §3730. The government then has 60 days (often extended) to investigate and decide whether to intervene. If the government intervenes and prevails, the relator receives 15-25% of the recovery. If the government declines and the relator pursues independently and prevails, the relator receives up to 30%.

The DOJ has signaled active interest in ERC qui tam matters. The COVID-19 Fraud Enforcement Task Force, established by the Attorney General in May 2021, has specifically identified ERC and PPP loan fraud as priority enforcement areas. ERC mill operators with substantial filing volumes are presumed targets of either direct DOJ investigation or relator-initiated qui tam suits.

For more on the FCA exposure profile specifically, see our detailed guide at ERC and the False Claims Act — covering qui tam mechanics, the knowing-standard, the reliance-on-promoter defense, and the strategic decision tree when both criminal and civil tracks are open.

IRS Criminal Investigation — How ERC Cases Get Built

IRS Criminal Investigation (IRS-CI) is the IRS’s law enforcement division, with special agents who carry badges, conduct interviews under modified Miranda warnings, and serve as the agency’s principal investigators for criminal tax matters. ERC criminal cases come into IRS-CI through three main channels.

Channel 1 — Civil audit referral. An ordinary IRS civil exam of an ERC claim develops indications of fraud. The civil revenue agent prepares Form 11661 (Fraud Development Recommendation), and the case is reviewed by a Fraud Technical Advisor. If the fraud indicators are sufficient, the agent files Form 2797 (Criminal Referral) to IRS-CI. The civil exam continues in parallel but the criminal track now controls the strategic options.

Channel 2 — Direct IRS-CI initiation. IRS-CI may open an investigation directly based on intelligence from other federal agencies (DOJ, Treasury, Social Security Administration), data analytics flagging unusual claim patterns, or third-party tips. ERC mill operations are typical Channel 2 targets — IRS-CI’s data analytics can identify preparers who filed unusually high volumes of ERC claims with similar eligibility theories.

Channel 3 — Grand jury subpoena. A federal grand jury convened by a U.S. Attorney’s Office may issue subpoenas in an ERC investigation. The grand jury can compel production of documents, financial records, and witness testimony. A grand jury subpoena to a business owner, accountant, or related party means the investigation has reached a stage where the U.S. Attorney’s Office is considering charges. This is a more advanced stage than IRS-CI special agent contact at the door.

The first sign that a taxpayer is under IRS-CI investigation is typically the special agent at the door — two agents, badges visible, requesting a “voluntary” interview. The Internal Revenue Manual requires IRS-CI agents to identify themselves, state that they are conducting a criminal investigation, and (if the interview takes place in a custodial setting) provide a Miranda-style warning. They are not required to disclose what the investigation is about or who else is involved.

The single most important rule when contacted by IRS-CI special agents: do not consent to an interview. Politely decline. Take their card. Contact criminal tax counsel immediately. The interview is the principal mechanism by which IRS-CI builds the willfulness element on a §7206(1) or §7201 case — and statements made in that interview, without counsel, can be the difference between a civil deficiency case and a federal indictment.

The COVID-19 Fraud Enforcement Task Force

In May 2021, Attorney General Merrick Garland established the COVID-19 Fraud Enforcement Task Force to coordinate the DOJ’s enforcement of pandemic-era relief programs — including the Employee Retention Credit, the Paycheck Protection Program, the Economic Injury Disaster Loan program, and Unemployment Insurance fraud. The Task Force has produced substantial enforcement activity and continues to drive new prosecutions years after the underlying programs ended.

Task Force coordination means an ERC investigation may pull in multiple federal agencies simultaneously: DOJ Tax Division, DOJ Criminal Division, IRS-CI, FBI, DOL OIG, SBA OIG, and various U.S. Attorneys’ Offices. The investigation footprint can be substantially broader than a typical IRS-CI matter.

The Task Force’s enforcement priorities, repeatedly emphasized in public statements:

• ERC promoter / mill operations. Large-volume preparers that filed thousands of ERC claims on aggressive eligibility theories, often with formulaic eligibility narratives that did not match the actual operating facts of client businesses.
• Fictitious businesses. Entities that claimed ERC for businesses that did not actually exist or did not have qualifying wages — typically involving fabricated payroll records and ghost employees.
• Identity theft / refund diversion. ERC claims filed using stolen taxpayer identification numbers, with refunds diverted to bank accounts controlled by the perpetrators rather than legitimate business operators.
• Double-dipping with PPP. Businesses that claimed ERC for the same wages used to support PPP loan forgiveness, in violation of the explicit prohibition under §2301(g)(1) of the CARES Act as amended.
• Aggressive eligibility theories. Claims based on theories that the IRS has consistently rejected — most commonly the “partial suspension” claim that any general OSHA guidance or industry-wide pandemic protocol constituted a “governmental order” partially suspending operations.

The Task Force has produced dozens of indictments through the 2024-2026 enforcement cycle, with sentences ranging from probation to multi-year federal prison terms depending on case facts. The cases continue to come — the IRS has stated publicly that ERC enforcement will run for years, given the volume of claims filed and the statute of limitations extensions enacted in IRA-2022 (5 years for ERC-specific claims for 2020-2021 quarters under §3134(l)).

ERC Promoter and Mill Criminal Exposure

The ERC promoter / mill criminal exposure profile differs substantially from the individual claimant profile. Promoters face §7206(2) aiding-and-abetting, §286 conspiracy, §287 false claims, and §3729 False Claims Act exposure — typically with vastly larger dollar amounts than any individual taxpayer would face.

The defining facts of the ERC mill cases the DOJ has been bringing:

• Volume — typically thousands of claims filed under the promoter’s preparation control.
• Formulaic eligibility narratives — substantially identical “qualification” language across many client claims, often clearly copy-pasted with minor variations.
• Aggressive theories — primarily “partial suspension” claims based on general pandemic guidance rather than business-specific governmental orders.
• Contingency fees — typically 15-25% of the credit refund, often payable upfront before the IRS processes the amendment.
• Inadequate diligence — minimal or no review of the client’s actual operations, payroll records, governmental order history, or revenue decline data before filing.
• Marketing pattern — heavy advertising campaigns (radio, TV, direct mail, internet) promising large refunds with little eligibility friction.

For promoters who match this profile, the criminal exposure stack is substantial. §7206(2) per-count maximums multiply across thousands of client filings. §286 conspiracy charges can reach the operators, the marketing partners, and the document-preparation contractors as a single conspiracy. The False Claims Act treble-damages-plus-per-claim-penalty mechanic can produce judgments in the tens to hundreds of millions for high-volume mills.

Defense for promoters typically involves dissecting the eligibility theories used, demonstrating the promoter’s actual subjective belief in their applicability (the Cheek good-faith defense), challenging the conspiracy predicate where the various operators acted independently, and establishing reliance on counsel where the eligibility theories were vetted by tax counsel before client adoption. Each of these defenses is fact-specific and depends on contemporaneous documentation.

Voluntary Disclosure Pathway — Form 14457 and the ERC VDP

Voluntary disclosure is the principal remedy for taxpayers who claimed ERC they should not have. Two paths exist: the general IRS Voluntary Disclosure Practice under Form 14457, and the now-closed ERC Voluntary Disclosure Program that ran in 2024.

The General IRS Voluntary Disclosure Practice

The Voluntary Disclosure Practice has been around in various forms since 1952 and is the IRS’s general framework for taxpayers who come forward voluntarily before the IRS has identified the noncompliance. The practice is implemented through IRS Form 14457 (Voluntary Disclosure Practice Preclearance Request and Application).

The Form 14457 application starts with a preclearance request — the IRS confirms that the taxpayer is not already under investigation for the matters being disclosed. If precleared, the taxpayer submits the full Voluntary Disclosure including amended returns, supporting documentation, and payment of tax, penalty, and interest. Successful Voluntary Disclosure Practice acceptance does not provide formal immunity from criminal prosecution — the IRS’s posted policy states that recommendations on prosecution are “made on a case-by-case basis.” In practice, however, voluntary disclosure substantially reduces the probability of criminal referral and is the principal pathway for resolving willful noncompliance without criminal charges.

Critical timing: voluntary disclosure has to precede IRS-CI contact or grand jury subpoena. Once the investigation has reached the taxpayer, voluntary disclosure is no longer available. The window is open before the agents arrive at the door, not after.

The ERC Voluntary Disclosure Program (Now Closed)

In December 2023, the IRS announced the ERC Voluntary Disclosure Program — a time-limited window during which taxpayers who had received ERC refunds they were not entitled to could repay 80% of the credit (i.e., the IRS forgave 20%), avoid penalties, and avoid criminal referral. The first window closed March 22, 2024; a second window opened August 2024 and closed November 22, 2024 with terms requiring 85% repayment.

The ERC VDP is closed. Taxpayers who missed the window are back to the general Voluntary Disclosure Practice (Form 14457), the ERC Withdrawal Program (still available for unprocessed claims), or facing the standard civil-deficiency / criminal-referral risk profile.

The ERC Withdrawal Program (Still Open)

For ERC claims that have been filed but not yet processed or paid by the IRS, the ERC Withdrawal Program allows the taxpayer to formally withdraw the claim. A successful withdrawal means the claim is treated as if it had never been filed — no tax due, no penalties, no criminal referral on the withdrawn claim. The withdrawal does not protect against exposure for claims already paid, but it does protect against the additional exposure on pending unfiled or unpaid claims. The IRS has indicated the withdrawal program will remain open for the foreseeable future, though specific availability dates may vary.

What to Do If You Are Contacted by IRS-CI or DOJ

The single most important rule: do not consent to an interview. Do not answer questions. Do not produce documents directly. Politely decline, take the agent’s card, and contact criminal tax counsel before any further contact.

The specific situations and the right response:

IRS-CI special agents at your door or business. Two agents, badges, requesting a “voluntary” interview. Decline politely: “I appreciate you coming, but I’d like to speak with my attorney before we have any conversation. Can you give me your card?” Take the card. Do not invite them inside. Do not answer any questions. Do not consent to a search of any document or device. Contact counsel within hours.

Grand jury subpoena. You receive a subpoena for documents, testimony before a grand jury, or both. Do not comply directly. Subpoenas are mandatory but the response is mediated through counsel. Counsel will analyze the scope, identify any privilege issues, negotiate compliance terms with the U.S. Attorney’s Office, and prepare for any testimony. Showing up at the grand jury without counsel and testifying is the worst possible outcome.

Letter or call from a DOJ Tax Division attorney. DOJ Tax often makes pre-charge contact to test the case before formal indictment. Do not return the call directly. Through counsel, communications can be channeled to preserve attorney-client privilege and assess whether pre-charge resolution is possible.

IRS Letter 6612, Letter 105-C, or Letter 6577-C on the civil side. These are civil ERC examination and disallowance letters — not criminal-investigation letters. They have 30-day response deadlines and require timely civil-side response. If the underlying ERC claim has criminal exposure, the civil response strategy needs to be coordinated with any criminal-defense strategy. See our coverage of ERC civil audits for the civil-side defense framework.

Communication from an ERC promoter who prepared your claim. If your ERC promoter is under investigation, expect them to contact clients seeking to coordinate stories, request that clients refrain from cooperating with investigators, or pressure clients to support the promoter’s eligibility theories. Do not discuss the matter with the promoter without counsel. Communications with the promoter are not privileged and can be evidence in any subsequent prosecution.

Why Brotman Law for an ERC Criminal Defense

The ERC criminal defense landscape sits at the intersection of tax-controversy work and white-collar federal criminal defense. Brotman Law’s ERC practice combines daily civil-side tax-controversy experience with deep ERC-specific content depth no general criminal-defense firm matches.

Most ERC criminal defense practices lead with post-indictment defense experience — valuable when charges have already been filed, but different from what pre-charge ERC defense actually requires. The day-to-day work at that stage is civil-side: Form 941-X analysis, eligibility-theory dissection, ERC mill litigation exposure, and qui tam risk under the False Claims Act. That is Brotman Law’s core practice, not a specialty added after the enforcement wave arrived.

Brotman Law’s ERC practice is built from the civil-side outward. We litigate ERC refund suits in federal district courts under our ERC refund litigation practice. We defend ERC audits in IRS civil exams under our ERC audit defense practice. We’ve produced what is to our knowledge the most detailed publicly-available analysis of the ERC and the False Claims Act at our ERC FCA guide. We’ve handled the voluntary-disclosure pathway under both the closed ERC VDP and the ongoing Form 14457 framework. The ERC criminal cases sit on top of that civil-side foundation.

Sam Brotman is was admitted to the California Bar in 2010 (State Bar No. 274966) and is admitted to practice before the United States Tax Court and the California Superior Court. Since 2013, Brotman Law has resolved over $1 billion in tax liabilities across 2,500+ matters, with a substantial portion of recent practice in ERC controversies — audits, appeals, refund litigation, and criminal-exposure defense. Sam has been recognized as a Super Lawyer in tax law every year since 2016. Brotman Law has been named to the Inc. 5000 list.

Written by Sam Brotman, JD, LLM, MBA. Last updated May 24, 2026.