As aggressive marketing continues, the Internal Revenue Service has renewed an alert for businesses to watch out for tell-tale signs of misleading claims involving the Employee Retention Credit.
The IRS and tax professionals continue to see a barrage of aggressive broadcast advertising, direct mail solicitations and online promotions involving the Employee Retention Credit. While the credit is real, aggressive promoters are wildly misrepresenting who can qualify for the credits.
Properly claiming the ERC
There are very specific eligibility requirements for claiming the ERC. Employers can claim the ERC on an original or amended tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have:
- Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings because of COVID-19 during 2020 or the first three quarters of 2021,
- Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
- Qualified as a recovery startup business for the third or fourth quarters of 2021.
The IRS has stepped up audit and criminal investigation work involving these claims. Businesses, tax-exempt organizations and others considering applying for this credit need to carefully review the official requirements for this limited program before applying.
The IRS reminds anyone who improperly claims the ERC that they must pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse cash position if it has to pay back the credit than if the credit was never claimed in the first place. So, it’s important to avoid getting scammed.
The IRS has added new staff to handle ERC claims, which are time-consuming to process because they involve amended tax returns.
The IRS has been issuing warnings about aggressive ERC scams since last year, and it made the agency’s list this year of the Dirty Dozen tax scams that people should watch out for.
Warning signs of aggressive ERC marketing
There are important warning signs that people should be wary of involving the Employee Retention Credit. Warning signs to watch out for include:
- Unsolicited calls or advertisements mentioning an “easy application process.”
- Statements that the promoter or company can determine ERC eligibility within minutes.
- Large upfront fees to claim the credit.
- Fees based on a percentage of the refund amount of Employee Retention Credit claimed. This is a similar warning sign for average taxpayers, who should always avoid a tax preparer basing their fee on the size of the refund.
- Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group’s tax situation. In reality, the Employee Retention Credit is a complex credit that requires careful review before applying.
- The IRS also sees wildly aggressive suggestions from marketers urging businesses to submit the claim because there is nothing to lose. In reality, those improperly receiving the credit could have to repay the credit – along with substantial interest and penalties.
These promoters may lie about eligibility requirements. In addition, those using these companies could be at risk of someone using the credit as a ploy to steal the taxpayer’s identity or take a cut of the taxpayer’s improperly claimed credit.
Not sure if your business qualifies?
Give us a call for an ethical, honest conversation about your unique situation. We have decades of experience helping business owners like you, and our firm did not pop up overnight to take advantage of unsuspecting people. We’re not going anywhere, and we proudly sign our name on anything we prepare, unlike ERC scammers. You will never be left holding the bag when the IRS comes around. If your firm doesn’t qualify for the ERC we will tell you so up front instead of filing a fraudulent return so we can get paid. Get started today!