The Employee Retention Credit (ERC) was introduced as part of the CARES Act, which provided individuals and businesses with government-sponsored financial relief in the wake of the COVID-19 pandemic. While the ERC is a legitimate tax credit, many third-party companies are utilizing aggressive marketing campaigns and misleading claims regarding who can receive this credit and how much they can qualify for. The IRS has issued an official warning against these tactics, renewing a warning they issued last year, and even adding these strategies to their list of Dirty Dozen Tax Scams this year. Here’s what you need to know about this scam.
How Scammers Are Luring Victims
Many times, tax scams are based around entirely false claims about fake tax refunds or unfounded threats regarding a tax debt that doesn’t exist, which can make them fairly easy for most taxpayers to recognize. This scam, however, is based around a real tax credit that many business owners do qualify for; this can often make it difficult to detect this scam, as it will seem like a legitimate offer to help you claim a genuine credit.
However, these disingenuous companies tend to leave out key details regarding the eligibility requirements or how the amount for the credit is calculated. They’ll made broad statements, stating you’re eligible before even reviewing your business’s finances. This can lead to a domino effect of tax problems for those who fall prey to these schemes. For example, promoters often fail to mention that employers cannot qualify for the ERC with wages used for Paycheck Protection Program loan forgiveness.
Scammers are luring victims through aggressive marketing techniques, including radio, television, and online ads, as well as direct phone calls, text messages, and mailers. Mailers may come from non-existent organizations, such as the “Department of Employee Retention Credit,” and often appear to be official IRS correspondence or a government mailer.
How to Spot a Scam
So, if mailers from these aggressive marketers can appear to be official IRS mail, how can you spot the scams? Here are some things to look out for:
• Any unsolicited calls – Simply put, the IRS is never going to reach out to you through phone calls, text messages, emails, or social media. If you receive any contact in these ways from someone stating to be associated with the IRS, you can feel confident it’s a scam.
• Broad statements and promises – While the IRS will send correspondence to taxpayers via mail, you should be on the lookout for any mailers that make broad statements about eligibility, or promise an easy application process, guaranteed qualification, or a large credit. No legitimate tax representative will make these kinds of promises, particularly without first reviewing your individual circumstances.
• Contingent fees – This is a common tactic for companies incorrectly promoting the ERC. Rather than charging a flat fee, they will charge a percentage of the refund generated by the ERC (often 10%-25% of the total refund). Most reputable companies will either charge a flat fee or will charge by the hour for the work that they do.
• Determining eligibility in minutes – Some promoters won’t promise eligibility but will claim to be able to determine your eligibility within minutes. You should be wary of any company claiming this, as ERC eligibility is quite complex and requires more than a few minutes to determine.
• Encouraging you to submit a claim, regardless of eligibility – Some highly aggressive marketing campaigns will encourage businesses to claim the ERC, because “you have nothing to lose.” This implies that your claim will simply be denied, with no harm done. However, those who improperly receive the credit could find themselves having to pay back the credit, as well as paying additional interest and penalties. It’s crucial that you not submit an ERC claim until your finances have been thoroughly reviewed and you’re confident you qualify.
Avoid Becoming a Victim
If you’ve been approached by promoters or received any contact regarding your qualification for the ERC, it’s important to protect yourself from becoming a victim and making an improper ERC claim. Don’t apply for the ERC unless you believe you’re legitimately qualified to do so. You can find details about this credit on the IRS website; take time to educate yourself regarding eligibility so you don’t fall prey to false claims. If you believe you’ve receive communication from one of these scams, report the abuse by submitting Form 14242 to the IRS Lead Development Center in the Office of Promoter Investigations.
Above all, make sure that you work with a trusted tax professional to submit your claim for the ERC—not with a company promoting the credit. If you have any questions regarding your ERC eligibility or require assistance submitting a claim, contact The Accounting Guys and schedule a consultation with one of our business tax experts in Provo. We’ll review your finances to determine if you’re eligible for the ERC and help you file your claim if you qualify. Call now to book an appointment.