As fraudsters continue to try to find new ways to profit off of unsuspecting taxpayers, the IRS has now added schemes related to the Employee Retention Credit (ERC) to their list of "dirty dozen tax schemes." We have previously reported on the ERC, a legitimate tax credit that can be claimed by many businesses that retained employees despite a significant decrease in revenue due to COVID-19. However, many aggressive marketers are misrepresenting and exaggerating who qualifies for the credit. Taxpayers who take the promoters at face value may end up paying hefty fees to the promoter for their services. Additionally, taxpayers who improperly claim the ERC will be required to pay it back with a likelihood of penalties and interest.

It is important to note that the ERC is a valuable credit to those who can legitimately claim it. When properly claimed, it provides much-needed relief to businesses who continued paying employees during COVID-19 despite a decline in profits. With this and all tax matters, it is important to seek guidance from a qualified professional who can help you navigate the requirements.

According to the IRS website, below are some warning signs of aggressive ERC marketing:

  • 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 based on a percentage of the refund amount of Employee Retention Credit claimed.
  • Claims that the business receiving the solicitation qualifies before any discussion of the group's tax situation.
  • Pressure to submit a claim because there is nothing to lose. Those who improperly receive the credit could have to repay the credit - along with substantial interest and penalties.

The ERC is a complex credit that requires careful review in assessing eligibility. Marketers who claim otherwise should not be taken at face value. In addition to the possible fines and penalties, the aggressive marketers could also be using these schemes as a means to access a taxpayer's identification for additional fraudulent purposes.

Businesses should always work with a trusted tax advisor on these matters. HLB Gross Collins, P.C. has in-depth knowledge of the requirements for claiming the ERC and can assist eligible clients in implementing the credit as well as all eligible tax savings opportunities.