Combatting Against the Warning Signs of an ERC Scam

In the latest warning regarding Employee Retention Credit (“ERC”) scams, the Internal Revenue Service (“IRS”) highlights warning signs of aggressive promoters who are urging businesses to file an ERC claim without careful review of their eligibility. Some of the ways that aggressive promotors are luring businesses include the following:

“Determine ERC Eligibility within Minutes”

ERC promoters engage in aggressive marketing tactics through misleading advertisements, unsolicited calls, and direct solicitations representing that they can “determine ERC eligibility within minutes” through an “easy application process.”

Determining a business’ ERC eligibility requires careful review of their tax situation, gross receipts, payroll records, governmental restrictions, and other circumstances relevant to the specific business. The IRS has added staff to handle ERC claims, because assessing eligibility is a time-consuming process. Without careful review, businesses carry the risk of improperly claiming the credit.

“Businesses have Nothing to Lose”

ERC promoters encourage businesses to file a claim to receive the tax credit because “businesses have nothing to lose.” This statement is not only inaccurate, but is disingenuous considering ERC promotors take large upfront fees prior to filing. Additionally, ERC promoters fail to inform businesses of potential tax consequences related to claiming the credit such as the need to reduce wage deductions on the business’ federal income tax return or that businesses cannot claim credit on wages already reported as part of the Payroll Protection Program.

The IRS has increased its auditing and criminal investigation efforts, meaning failure to receive a full consultation of eligibility and consequences for filing can lead to a number of unintended costs. If a business was not eligible to receive the ERC, not only would the business lose the large fee paid to the promoter, but the business would be required to pay back the entire amount claimed, plus additional penalties and interest for filing an improper claim.

The ERC is a legitimate tax credit that can provide significant financial relief if eligible. To avoid falling prey to the warning signs of ERC scams, businesses should work with a group of trusted professionals with experience in reviewing ERC eligibility. The attorneys at Dvorak Law Group can conduct an accurate review of your business’ facts and circumstances to ensure eligibility and that you are properly advised on all matters before filing.

Dave Mayer