Key Takeaways:
- The IRS is advising businesses about aggressive marketing strategies surrounding the Employee Retention Credit (ERC) and urging caution in identifying potential red flags.
- Businesses can protect themselves from improper ERC claims by working with a trusted tax professional, requesting a detailed worksheet, and assessing eligibility beforehand.
- Promoters may use tactics such as unsolicited calls or advertisements, demanding large upfront fees, charging fees based on the refund amount, and withholding crucial details about requirements.
- Seek advice from a trusted advisor to guard against fraudulent practices and ensure compliance with ERC regulations.
The IRS is cautioning businesses about aggressive marketing strategies surrounding the Employee Retention Credit (ERC) and urging vigilance in identifying potential red flags.
Also known as the Employee Retention Tax Credit or ERTC, this legitimate pandemic-era tax credit has become a target for misleading promotions to businesses that may not be eligible.
Despite claims from promoters that ERC submissions are “risk-free,” businesses face significant risks as the IRS ramps up audits and criminal investigations. Numerous criminal cases are currently in progress, and a large number of ERC claims have been flagged for audit.
It’s important to note that anyone who improperly claims the ERC will be required to repay it, potentially incurring penalties and interest. Ultimately, a business or tax-exempt organization could find itself in a far worse financial situation if it has to repay the credit, underscoring the importance of cautious decision-making and avoiding pressure from promoters who may collect contingency fees of up to 25%.
Stay informed and protect your business from unnecessary risks when claiming the Employee Retention Credit.
ERC Warning Signs to Watch Out For:
- Unsolicited calls or advertisements promoting an “easy application process.”
- Claims of determining ERC eligibility within minutes.
- Demanding large upfront fees to file the credit.
- Charging fees based on a percentage of the refund amount.
- Preparers who refuse to sign the ERC return or share their identifying information.
- Promoters who assert eligibility without discussing the business’s tax situation.
- Unscrupulous promoters may also deceive by not providing detailed documents supporting ERC computations, putting taxpayers at risk of identity theft or someone fraudulently claiming the credit.
Tactics Promoters Use to Attract Victims
The IRS has observed various methods employed by promoters to entice businesses, tax-exempt groups, and others to apply for the credit:
- Aggressive marketing through multiple channels, including radio, television, social media, online platforms, and calls/text messages.
- Fake letters sent by ERC mills, often resembling official IRS or government correspondence, urging immediate action.
- Withholding crucial details about eligibility requirements and computation methods, misleadingly suggesting universal eligibility.
- Neglecting to disclose that wage deductions on federal income tax returns must be reduced by the amount of the ERC, leading to further tax complications.
- Failing to inform employers that the ERC cannot be claimed for wages already reported as payroll costs for Paycheck Protection Program loan forgiveness.
- Misrepresenting supply chain disruptions as qualifying factors for the credit, contrary to IRS legal guidance.
Protective Measures Businesses and Others Can Take Against Improper ERC Claims
The IRS would like to remind businesses, tax-exempt groups, and others who are being approached by promoters about the Employee Retention Credit that there are simple steps you can take to safeguard yourself from making improper claims:
Work With a Trusted Tax Professional
If you are an eligible employer seeking assistance with claiming the credit, it is highly recommended to work with a trusted tax professional. The IRS advises against relying on advice from individuals promoting these credits. Keep in mind that promoters primarily aim to make money and may not have your best interests at heart.
Request a Detailed Worksheet
To gain a better understanding of your eligibility for the Employee Retention Credit and the calculations used to determine the credit amount, you can request a detailed worksheet.
Assess Your Eligibility Before Applying
Please ensure that you believe you are genuinely qualified for this credit before submitting an application. You can find more information about the credit on IRS.gov, and for professional advice regarding the Employee Retention Credit, it is advisable to consult with a trusted tax professional rather than relying on credit promoters.
Stay vigilant and informed to protect your business from fraudulent practices and ensure compliance with ERC regulations. If you have concerns about an ERC claim that you have filed or are planning to file, contact your KRD advisor.
More information is available on IRS.gov/erc.
