Beware! Scam Involving Employee Retention Credit

The law office of Ufberg & Associates recently sent out communication regarding a scam surrounding the employee retention credit. Below is the text from Ufberg & Associates.

Employee Retention Credit

The Employee Retention Credit (ERC) was designed to provide a refundable tax credit for businesses that continued paying employees while shut down during the COVID-19 Pandemic, or for businesses that had a significant decline in gross receipts during the eligibility periods. However, with this resource came the opportunity for misuse and abuse.

Schemes and Scams

The Internal Revenue Service (IRS) has learned that third party promoters have developed schemes to entice businesses to apply for the ERC, who may otherwise not be eligible for the ERC. Third party promoters are continuing to engage in marketing campaigns designed to have businesses enlish their services to apply for ERC and then charging businesses 10%, 20%, 30% for more of the amount of the ERC for their services. The IRS reacted to these developments by adding the ERC to its “Dirty Dozen” list in March of 2023.

The IRS’s “Dirty Dozen” list is an annual list generated by the IRS listing potential scams and schemes that put taxpayers and the tax professional community at risk. The list is aimed at helping raise awareness to protect honest taxpayers from potential bad actors.

The IRS Commissioner made the following statement on this issue: “The aggressive marketing of these credits is deeply troubling and a major concern of the IRS. Businesses need to think twice before filing a claim for these credits. While the credit has provided a financial lifeline to millions of businesses, there are promoters misleading people and businesses into thinking they can claim these credits. There are very specific guidelines around these pandemic-era credits; they are not available to just anyone. People should remember the IRS is actively auditing and conducting criminal investigations related to these false claims. We urge honest taxpayers not to be caught up in these schemes.”

Warning Signs

The aggressive marketing from these promoters can come in a variety of forms, such as radio, television, and online advertisements. Additionally, promoters have been sending out fake letters from non-existent groups, such as the “Department of Employee Retention Credit” urging businesses to take immediate action in applying for ERC.

The IRS has provided some warning signs of an aggressive ERC marketing that businesses should be wary of. These included:

• 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 the ERC claimed.
• Aggressive claims from the promoter that a business qualifies for the ERC before any discussion of the group’s tax situation. In reality, the ERC is a complex credit that requires careful review before applying.
• The IRS also sees aggressive suggestions from marketers urging businesses to submit the claim because there is nothing to lose. In reality, the IRS would expect those improperly receiving the credit to repay the credit — along with the potential assessment of substantial interest and penalties.

How to Protect Yourself

• Work with a Trusted Tax Professional — Employers who believe they may be eligible for the ERC should contact a trusted tax professional and not rely on the advice of any individual or company soliciting these credits.
• IRS urges employers not to apply for ERC if the employer does not have a reasonable belief that the employer is legitimately qualified for this credit.

Lastly, if you wish to seek further information about the ERC, you can find additional information from the IRS by following the link: Employee Retention Credit Resource.

Disclaimer: This communication from the law office of Ufberg & Associates provides a general overview of new legal developments. It is not intended to provide legal advice. If you have questions or would like more information about how these developments may affect your businesses, please contact Ufberg & Associates at (570) 341-8800.