When Do ERC Promoter Penalties Become Unconstitutional?

Tax attorney Chad Vanderhoef published a Tax Notes article on the IRS' heightened scrutiny of employee retention credit (ERC) claims. He focuses on ERC consultants the Internal Revenue Code labels "promoters," who may face steep penalties under Internal Revenue Code (IRC) Section 6700. Mr. Vanderhoef explains how the ERC's complex eligibility rules led many businesses to rely on these third-party advisors and notes that the promoter penalty can reach 50 percent of a consultant's gross income from the activity, which can balloon quickly for high-volume firms. He also argues these penalties are punitive, not remedial, and should be reviewed under the Eighth Amendment's Excessive Fines Clause. Citing the proportionality framework applied in United States v. Schwarzbaum, he contends the penalties may be unconstitutional when assessed without proof of client use or government harm.

READ: When Do ERC Promoter Penalties Become Unconstitutional? (Subscription required)