The Internal Revenue Service (IRS) warns businesses to be wary of aggressive and misleading promotions related to the Employee Retention Credit (ERC). While the ERC is a legitimate pandemic-era tax benefit, dubious marketing tactics are pushing businesses, potentially unqualified, to claim the credit.
Despite promises of “risk-free” claims by some promoters, the IRS has heightened its audit and criminal investigation initiatives. Hundreds of criminal cases are active, with thousands of ERC claims under review.
Claiming the ERC improperly can result in businesses needing to repay the credit, along with potential penalties and interest. This could lead to a significant financial burden, potentially worse than if the credit had never been claimed. The IRS highlights that businesses should be cautious, especially when promoters demand high contingency fees, sometimes as much as 25% of the credit amount.
Key Points for Properly Claiming the ERC:
- The ERC is valid for qualified wages paid between March 13, 2020, and Dec. 31, 2021.
- Eligibility criteria include:
- Operations suspension due to government orders related to COVID-19.
- Significant decline in gross receipts in 2020 or 2021.
- Qualification as a recovery startup business in late 2021.
Warning Signs of Questionable ERC Marketing:
- Unsolicited communication claiming an “easy application process.”
- Promotions guaranteeing quick ERC eligibility checks.
- Hefty upfront fees or fees based on the credit refund amount.
- “Ghost preparers” who don’t provide identifying information.
- False claims about a business’s eligibility without an assessment.
Promoters might also misrepresent eligibility requirements and withhold supporting documents. There’s also a potential threat to taxpayer identity or fraudulent claim cuts.
How Promoters Trap Businesses:
Small Business Deals
- Aggressive advertising through multiple channels.
- Deceptive mail campaigns.
- Omitting essential details about eligibility or credit calculation.
- Misinformation on wage deductions and participation in other financial relief programs.
- Misguidance on qualifications related to supply chain disruptions.
- Consult with reputable tax professionals.
- Request comprehensive worksheets detailing ERC calculations.
- Only apply if genuinely qualified. Use resources on IRS.gov for accurate information.
The IRS reiterates the importance of diligence and consultation with trusted professionals over promoters who might prioritize profit over clients’ best interests.