Have you filed for ERC (Employee Retention Credit)? You might be wondering if your business qualifies, and with panic-inducing ERC fraud headlines circulating, you may be hesitant to apply. That’s understandable.
In a report released earlier this year, the Treasury Inspector General for Tax Administration stated that the “IRS has identified 11,096 ‘suspicious’ federal returns that claimed over $2 trillion in credits.”
Unscrupulous operators (ERC mills) have taken advantage of the ERC’s complex rules, charging unsuspecting businesses to make claims on their behalf while promising big payouts in one of the largest tax-related scams in US history.
In this article, we’ll show you how to protect yourself from scams by revealing ERC mills’ red flags. And we’ll explain how you can check if your business qualifies and how to apply safely. So you’ll receive what you’re entitled to while avoiding hefty ERC fraud penalties.
What is ERTC (Employee Retention Tax Credit)?
ERTC, or ERC, is the Employee Retention Tax Credit, a generous government stimulus program designed to bolster businesses retaining staff during the pandemic instead of laying them off.
Under the refundable tax-credit scheme, businesses that continued paying employees while shut down due to the pandemic or had a considerable decline in gross receipts from March 13, 2020 to December 31, 2021, can claim up to $26,000 per employee on their payroll.
The complex ERTC scheme has been amended three times since its introduction as part of the CARES Act in 2020. And while the qualifications seem simple, each interpretation is tricky, paving the way for ERC mills to deceive unsuspecting business owners.
What Are ERC “Mills”?
High inflation, worries about an impending recession, and the ERC’s complex rules have created a perfect storm for mushrooming ERC ‘mills.’ These ERC tax credit pop-up shops are third parties aggressively promising large payouts for small business owners.
Most ERC promoters are not qualified to claim on your behalf. Employers must use experienced tax professionals who understand aggregation rules, attribution rules, and how PPP loans impact qualified wages.
So how can you tell you’re dealing with an ERC mill operator rather than a credible specialist firm? It’s simple. These are the seven red flags you need to know.
Avoid all operators who:
Use sketchy communications – mailers, voicemails, cold calls, texts, questionable websites, and letters that appear to come from IRS.gov (some with a pre-printed check).
Promise free cash – without having seen your payroll.
Are not willing to amend tax returns – if the preparer asks you to find someone else to do this, they don’t want to take responsibility for signing an IRS tax return.
Exaggerate your claim – refunding numbers that exceed your payroll.
Don’t ask the right questions – for example: what is the relationship with your employees? If your employees are your spouse or children (related), you may not qualify.
Remove all responsibility – some operators include a clause in agreements, freeing them from the burden regarding eligibility determination.
Pressure you – into signing documents by threatening looming deadlines.|
Don’t give out money or personal information if you receive suspicious calls or emails. Instead, use Form 3949-A Information Referral to report the scammer. If you think you might have been duped, get a second opinion from your trusted payroll company to avoid being penalized by the IRS.
ERC Fraud Penalties
According to the IRS website, ‘Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.’
If a taxpayer files a false claim for an ERC credit, they likely face the charges below:
Tax evasion in Internal Revenue Code § 720.
False subscription in IRC § 7206.
The IRS states tax evasion is: ‘the failure to pay or a deliberate underpayment of taxes.’ False subscription involves someone signing a return under penalty of perjury while knowing that at least one line on the return is fraudulent in a material way.
There is a $100,000 maximum fine for both crimes, and criminal penalties are five and three years maximum, respectively.
Additionally, a federal criminal statute ‘bars anyone from aiding and abetting another to commit a criminal act.’ If a taxpayer gets found guilty of this statute, the law will find the person guilty as if they committed the action themselves.
The IRS sometimes charges a business owner with ‘aiding and abetting the filing of false corporate tax returns.’
With the IRS getting roughly $80 billion in funding through the Inflation Reduction Act and implementing processes to spot fraudulent claims, it will take ERC fraud very seriously. So document all your gross receipts or governmental orders and keep all documentation for at least four years after the tax is paid or due.
What Your Business Can Do
As with all complex tax matters, it pays to do your due diligence. Follow these tips to avoid being taken advantage of by ERC mills.
Only work with a stable source that has been around for a long time, so you’ll know they’re still around if the IRS comes knocking.
Ensure the preparer shows proof of ERC eligibility.
Check if the company is legit by asking if it offers audit protection. If the IRS discovers that your business didn’t qualify during an audit, the company will reimburse you for any ERC fraud penalties.
Asure is a trusted source and will keep your company out of IRS trouble.
Take the ERTC qualification quiz, and let us assist with reviewing qualified wages, calculating the credits, and filing amended payroll tax returns so you can receive a financial boost for your company without worry.
If you’d like to speak to an HR representative about your business, contact us.
NOTHING IN THIS COMMUNICATION CONSTITUTES LEGAL OR TAX ADVICE OR A GUARANTY OF ELIGIBILITY OF AN EMPLOYEE RETENTION TAX CREDIT. ELIGIBILITY DETERMINATIONS RELATED TO THE EMPLOYEE TAX RETENTION CREDIT ARE THE RESPONSIBILITY OF THE EMPLOYER.