Understanding Employee Retention Credit Fraud and How to Avoid It

You have heard from us about the benefits of the Employee Retention Credit (ERC).  And you have probably received solicitations from third parties on the credit or even seen and heard commercials on the television and radio. The ERC is definitely a hot topic, given the advertised claims of billions of dollars returned to employers.

The Internal Revenue Service (IRS) has heard the chatter as well and is aggressively cracking down on so-called “ERC mills” – promoters of the credit making very misleading claims about the benefits.

The IRS has stepped up audit and criminal investigation work involving these claims. In fact, criminal charges have begun to be filed against the promotors of fraudulent claims. Businesses, tax-exempt organizations and others considering applying for this credit need to carefully review the official requirements for this limited program before applying. Those who improperly claim the credit face follow-up action from the IRS. Additionally, if the credit is overstated, the credit – plus penalty and interest – will need to be repaid.

“The aggressive marketing of the Employee Retention Credit continues preying on innocent businesses and others,” said IRS Commissioner Danny Werfel. “Aggressive promoters present wildly misleading claims about this credit. They can pocket handsome fees while leaving those claiming the credit at risk of having the claims denied or facing scenarios where they need to repay the credit.”

The IRS notes the following 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 ERC 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.
  • Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group’s tax situation. In reality, the ERC is a complex credit that requires careful review before applying.
  • These promoters may lie about eligibility requirements. 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.

Cray Kaiser continues to be at the forefront of understanding whether you qualify for the ERC.  If you would like us to review your situation to determine credit eligibility, please call our office today at (630) 953-4900 or connect with us here.

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