Introduction:
In the wake of the unprecedented challenges brought about by the COVID-19
pandemic, businesses and tax-exempt organizations have found relief in the Employee
Retention Credit (ERC or ERTC). This complex tax credit was designed to support
those who continued paying employees during government-mandated shutdowns or
experienced a decline in gross receipts. While there are tangible benefits associated
with the ERC, there is also risk associated with aggressive marketing tactics, leading
ineligible taxpayers astray.
In this blog post, we review the intricacies of the ERC, shedding light on the importance
of accurate eligibility assessments and the consequences of incorrect claims. The
Internal Revenue Service (IRS) is actively addressing the issue of misrepresented
information and has established a question-and-answer tool that helps business owners
determine eligibility and aims to prevent the submission of inaccurate claims.
Understanding the ERC Eligibility Checklist
The IRS asks two basic questions to determine whether a business qualifies for the tax
credit.
1. “Did you 1) operate a trade, business or tax-exempt organization and 2) have
employees and pay wages to them between March 13, 2020, and Dec. 31,
2021?”
2. “Did your trade or business experience the required decline in gross receipts
during the eligibility periods in 2020 or the first three calendar quarters (Jan.
through Sept.) of 2021?”
If the answer is “Yes” to both of these questions a business may be
considered eligible for the ERC.
The IRS's Stance on Misrepresentation
While the ERC is an extremely beneficial credit, the IRS has raised concerns about
aggressive marketing tactics leading to misinformation disseminated to business
owners. Many promoters are misrepresenting eligibility criteria, potentially causing
businesses and tax-exempt organizations to believe they qualify when, in fact, they do
not.
Consequences of Incorrect Claims
It's important to emphasize that incorrectly claiming the ERC can have severe
repercussions. Taxpayers who incorrectly receive the credit may be required to pay it
back with penalties and interest. What’s worse, there is personal exposure to business
owners whose credits are redacted by the IRS. The IRS has developed a question-and-
answer tool to guide employers through the eligibility process. It can be used by those
considering claiming the credit and those who have already submitted a claim.
Protect Yourself from ERC Scams: Identifying Red Flags in
Aggressive Marketing
Employers should be aware of deceptive promotions that encourage them to claim the
ERC regardless of whether they meet the criteria. Incorrectly claiming the credit
requires repayment. It also carries the potential for penalties, interest, and possible
personal assessment. It's important to understand that the only legitimate way to
retroactively claim the ERC is by filing an amended federal employment tax return
(Form 941-X).
ERC Scam Advertisements Becoming More Common
ERC scam promotions are common across various channels, from radio and TV to
social media. Some may even mimic official government letters, texts, emails, or phone
calls. There are even some unscrupulous groups sending salespeople door-to-door
informing business owners they qualify for the ERC without vetting the business’s
qualifying criteria.
Warning Signs of Aggressive ERC Marketing
Understanding the qualification process and partnering with a reputable return preparer
requires diligence. Given the overwhelming volume of aggressive marketing and
baseless promises, it is important that business owners are diligent in selecting a
reputable return preparer. As we all know, oftentimes in life if something sounds too
good to be true, it often is. Be cautious if you come across:
● Unsolicited Contact: Beware of unsolicited ads, calls, emails, or texts from
unfamiliar sources.
● Instant Eligibility Claims: Exercise caution if a promoter claims the ability to
determine your ERC eligibility within minutes.
● High Upfront Fees: Avoid promoters demanding large upfront fees for claiming
the credit.
● Refund Anticipation Loans: Some promotors may offer a loan to your business to
be repaid when you receive the ERC payment. Take note of any promoter
pressuring you to accept a refund anticipation loan.
● Premature Eligibility Claims: Be cautious if a promoter claims you qualify for the
credit without discussing the qualification requirements.
● Misleading Promises: Watch out for statements urging you to submit the claim
and/or suggesting there's nothing to lose. Incorrect claims can lead to significant
repayments, including interest, penalties, and personal tax exposure to the IRS.
Risks Associated with Deceptive Promoters
Promoters may fabricate eligibility requirements. Oftentimes, return promoters will
charge a percentage fee commensurate with the anticipated ERC. This inherently
incentives deceptive promoters to maximize the ERC claim and increase their fee as a
result. According to the IRS, engaging with such companies could even expose you and
your business to identity theft or filing fraudulent returns on a company’s behalf in
attempt to obtain the credit.
Be cautious of promoters who require you to sign IRS authorization documents such as
a Tax Information Authorization (Form 8821) or Power of Attorney (Form 2848). These
forms often allow access to sensitive taxpayer information above and beyond the ERC.
Also, be mindful of any promoter that requires an IRS change of address form to
attempt to intercept ERC refunds. This will change the address on file for all future IRS
correspondence. ERC refunds can only be issued to the business that claimed the
credit and, as such, any promoter attempting to circumvent IRS refunds should be
viewed cautiously.
Given the number of changes to the ERC program, the qualification process and the
IRS’s changing stance on when returns claiming ERC will be processed, it is important
to stay informed and safeguard your business against deceptive practices.
How the IRS is Assisting Taxpayers
Due to the complexity of the ERC, the IRS has created a comprehensive tool designed
to simplify the process. This question-and-answer resource breaks down the main
eligibility factors into a user-friendly format, allowing businesses and organizations to
navigate the intricate details with ease. Learn more at:
employee-retention-credit#qualified
Conclusion
As businesses and tax-exempt organizations explore the potential benefits of the ERC,
it is important to approach the eligibility assessment with precision. The IRS's
commitment to assisting taxpayers is evident through its question-and-answer tool,
which can be a valuable resource in ensuring accurate claims and preventing fraud.
By understanding the eligibility checklist and staying informed about potential pitfalls,
businesses can confidently understand the ever-changing ERC landscape and leverage
the credit for its intended purpose. The IRS remains a steadfast ally, guiding taxpayers
through the intricacies of the ERC and safeguarding against incorrect claims and
unscrupulous promoters.
References:
1) Internal Revenue Service. "Employee Retention Credit." IRS, www.irs.gov/coronavirus/employee-retention-
credit.
2) Internal Revenue Service. "Employee Retention Credit Eligibility Checklist: Help Understanding This
Complex Credit." IRS, www.irs.gov/newsroom/employee-retention-credit-eligibility-checklist-help-