There Is No Such Thing As a Department of Employee Retention Credit: Ignore ERTC Promoters, Skip the Seminars, and Avoid ERC Scammers

Not a real department. Courtesy | Twitter, Dan Chodan, @danchodan

 

Beware of Third-Party ERC Schemes and Aggressive Promoters

The Employee Retention Credit (ERC) is a tax credit that helps employers retain employees during the COVID-19 pandemic.

However, there has been an alarming increase in fraudulent schemes surrounding the ERC.

If you own a business, you might have received a few letters, calls, emails, or online ads from companies claiming — not to be a tax preparer — but to file paperwork on your behalf.You may even get YouTube videos that invite you to a seminar (for a fee) that will show you how to get more of the Employee Retention Tax Credit (ERTC or ERC) than you would get otherwise if you filed alone.

It’s important to be cautious of illegitimate ERC consultants that may offer inaccurate advice. These consultants may appear legitimate with fancy marketing tactics and persuasive language, but they may not have the expertise and knowledge needed to navigate the complexities of the employee retention tax credit.

If you claim the credit for your business, you may get the money – and months later, get hit with an IRS audit that says you didn’t actually qualify, and you would have to pay back tens of thousands of dollars.

Aggressive marketing that looks like an official government notice. Courtesy | Reddit user, AnActualTomato

Aggressive Marketing and Illegitimate Employee Retention Tax Credit Consultants 

Identifying and avoiding illegitimate ERC consultants is critical to avoid falling victim to scams and losing money. These consultants may use persuasive language and marketing tactics to appear legitimate, but they may not have the credentials and expertise required to advise on the complexities of the ERC. They may even use your business’s contact information or the number of employees you have in direct solicitations.

Be wary whenever you see that a business offers a higher payment amount than others. The ERC is a refundable tax credit only for qualified wages. Your business’s qualified wages should come out to the same number, no matter who is doing the math. 

Check their credentials. Ask for references and verify their qualifications before hiring their services. Always rely on qualified tax professionals or accounting professionals who have current licenses.

It’s important to note that these illegitimate consultants may provide inaccurate advice that could lead to significant financial losses and even penalties from the IRS. They may not be aware of the eligibility requirements, how to calculate qualified wages, or the application process, causing their clients to miss out on tax savings or receive a rejection from the IRS.

Do Not Seek ERC Credits for Disqualified Employees

The Employee Retention Credit (ERC) has been an important financial lifeline for many businesses struggling to survive the COVID-19 pandemic. However, it’s important to understand that not all employees are eligible to count towards ERC refunds.

According to the IRS, “disqualified employees” include the business owner, their spouse, and any family members. Additionally, employees who have a 50% or greater ownership stake in the business or are related to someone who does are also ineligible.

It’s important for business owners to exercise caution when applying for ERC credits and to ensure they are complying with all eligibility requirements. Missteps or false claims can result in penalties and even criminal investigations.

Before engaging with a third-party promoter, it’s important for business owners to investigate thoroughly and ensure that the promoter is reputable and has the necessary expertise. There have been instances of tax-related illegal activities and fraudulent claims involving the ERC and other pandemic-era credits, making due diligence essential.

Beware of Anyone Promoting the Employee Retention Credit 

Aggressive marketing doesn’t have to end with you filing with ERC consultants. What if you just pay a handsome fee to attend a seminar?  Millions of businesses struggled during the COVID-19 pandemic. Paying to attend a seminar about a tax credit you likely don’t qualify for is not true relief. 

Business owners must be aware of the warning signs of these fraudulent promotions and ensure they are complying with all eligibility requirements. One major red flag is the promise of large upfront fees in exchange for assistance in claiming the ERC credit. This is not necessary, as eligible taxpayers can either claim the credit themselves on their employment tax return, or have their accounting professional assist them in doing so.

Another warning sign is aggressive claims of easy eligibility, as ERC credits are only available to certain qualified employers and require significant documentation. Additionally, third-party promoters may make false promises in exchange for personal information, which can potentially lead to identity theft.

The IRS has warned taxpayers to be cautious of third-party promoters and to thoroughly investigate the legitimacy of any claims made. The IRS has also stated that any missteps or false claims can result in penalties and criminal investigations.

It is essential for business owners to evaluate their eligibility for the employee retention tax credit and to be cautious when encountering third-party promoters. Any business that has experienced a significant decline in gross receipts or suspension of business operations due to a government order may be eligible for the ERC credit. As with any tax credit, proper due diligence is necessary to ensure compliance with eligibility requirements and to avoid falling victim to fraudulent promotions.

Reporting tax-related fraud and scams

The Employee Retention Credit (ERC) is a valuable tax credit available to eligible employers. You suspect you received a letter or a scam suggesting you apply for a tax credit you do not qualify for, that falls under tax-related illegal activities, and it is crucial to report it immediately.

One common form of tax-related fraud is phishing attempts that impersonate the IRS. These emails, phone calls, and text messages aim to trick individuals or businesses into sharing sensitive information such as their Social Security number or tax identification number. If an employer receives an email that appears to be from the IRS but seems suspicious, they should forward it to [email protected] immediately.

Report ERC abuses. To do so, submit Form 14242, Report Suspected Abusive Tax Promotions or Preparers. People should mail or fax a completed Form 14242, Report Suspected Abusive Tax Promotions or Preparers and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations.

Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Road
Laguna Niguel, California 92677-3405
Fax: 877-477-9135

Another option is to send the information to the IRS Whistleblower Office. This Office is responsible for processing information submitted by individuals who believe that an individual or company is not complying with tax law. The IRS may pay money to the whistleblower if the information submitted leads to a successful enforcement action against the non-compliant individual or company.

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