There are important tips that people should be wary of involving the Employee Retention Credit.

Warning Signs

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 are based on a percentage of the refund amount of the 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.

• Preparers refusing to sign the ERC return being filed by the business, exposing just the taxpayer claiming the credit to risk.

• 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.

Unscrupulous promoters may lie about eligibility requirements, including refusing to provide detailed documents supporting their computations of the ERC. 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.

How the promoters lure victims.

The IRS continues to see a variety of ways that promoters can lure businesses, tax-exempt groups, and others into applying for the credit.

• Aggressive marketing. This can be seen in countless places, including radio, television, and online as well as phone calls and text messages.

• Direct mailing. Some ERC mills are sending out fake letters to taxpayers from non-existent groups like the "Department of Employee Retention Credit." These letters can be made to look like official IRS correspondence or an official government mailing with language urging immediate action.

• Leaving out key details. Third-party promoters of the ERC often don't accurately explain eligibility requirements or how the credit is computed. They may make broad arguments suggesting that all employers are eligible without evaluating an employer's individual circumstances.

• For example, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021, but promoters fail to explain this limit.

• Also, the promoters may not inform taxpayers that they need to reduce wage deductions claimed on their business's federal income tax return by the amount of the Employee Retention Credit. This causes a domino effect of tax problems for the business.

• Payroll Protection Program participation. In addition, many of these promoters don't tell employers that they can't claim the ERC on wages that were reported as payroll costs to obtain Paycheck Protection Program loan forgiveness.

How businesses and others can protect themselves.

The IRS reminds businesses, tax-exempt groups, and others being approached by these promoters that there are simple steps that can be taken to protect themselves from making an improper Employee Retention Credit.

• Work with a trusted tax professional. Eligible employers who need help claiming the credit should work with a trusted tax professional; the IRS urges people not to rely on the advice of those soliciting these credits. Promoters who are marketing this ultimately have a vested interest in making money; in many cases, they are not looking out for the best interests of those applying.

• Request a detailed worksheet explaining ERC eligibility and the computations used to determine the ERC amount.

• Don't apply unless you believe you are legitimately qualified for this credit.

Questions?

If you have questions about the ERC, scams related to this topic, or tax-related questions, please give me a call.