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The IRS has recently announced that they have caught up on the previous backlog of Employee Retention Credit (ERC) applications stemming from the COVID-19 pandemic. Now, they are turning their attention to fraudulent claims as well as businesses using misleading marketing to encourage ERC claims. Small businesses should be wary of marketing campaigns that make big promises of ERC eligibility with little effort or information, as many bad actors continue to exploit the pandemic for their own gain.
What Is the Employee Retention Credit?
The Employee Retention Credit (ERC) is a refundable tax credit that was established to help businesses during the pandemic. The period of eligibility is a small window, limited to March 13, 2020 through December 31, 2021. Although the time frame of eligibility is very strict, businesses can apply for the credit through April 15, 2025.
The ERC was designed to help businesses that paid employees during the time period above in spite of their operations being fully or even partially suspended due to a government order. Additionally, those businesses that had a significant reduction in gross receipts during that time period may also be eligible. Businesses that suffered due to supply chain disruptions only qualify for the ERC if the supply chain issue was a direct result of a government order.
Congress amended the ERC three times, and the IRS is seeking legislative assistance from the Treasury Department to address the fraud concerns, possibly by moving up the final application date.
Be Aware of ERC-Related Scams
If you apply for and receive the Employee Retention Credit but are found ineligible after the fact, your company will be liable for repaying the credit and any associated penalties and added interest, regardless of whether or not you intended to defraud the IRS. This may prove more costly than your initial financial setback during the pandemic.
The IRS warns that many unscrupulous individuals are utilizing aggressive marketing tactics in order to lure companies into applying for the ERC. These third parties may also paint an oversimplified picture of how to qualify for the ERC by leaving out key information.
As part of their ongoing efforts to prevent companies from being exploited by these unscrupulous businesses, the IRS has provided the following warning signs:
- Unsolicited calls or advertisements regarding the ERC
- Claims that ERC eligibility will take only a few minutes
- Upfront fees in order for your company to claim the ERC
- Fees based on a percentage of your proposed refund amount
- Preparers unwilling to sign the ERC return
- Any claim before careful review that your business qualifies for ERC
Additionally, business owners should be aware that these third-party companies may actually be looking to steal the taxpayer’s identity through obtaining sensitive financial information.
How to Protect Your Business
When it comes to the ERC, the first and most important step is to make sure that your business is actually qualified for the credit. In order to do so, you should familiarize yourself with the requirements and consult with a trusted tax professional. Do not take the word of marketers claiming you are eligible, as their interest is in profiting from this one-time credit versus building a relationship with your business.
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 the potential financial fallout of filing improperly for the Employee Retention Credit. The experienced CPAs at BradyRenner work with small businesses every step of the way, from their founding to their closing. We can help you discover whether or not you are eligible for this and other tax credits as part of an entire suite of financial services we offer to guide small business owners.
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