ERC Scams on the Rise

Safeguarding Your Business Against Employee Retention Credit Scams

The Employee Retention Credit (ERC) is a valuable financial relief program established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This program assists eligible employers in retaining their employees during challenging times by providing payroll tax credits. Unfortunately, fraudsters have seized this opportunity to prey on businesses, leading to an increase in ERC scams. This article will guide you on how to avoid falling victim to these scams, protecting your sensitive information, and ensuring the legitimacy of the service providers you engage with.

Understanding the Employee Retention Credit

The ERC is a refundable tax credit designed to incentivize employers to keep employees on their payroll during difficult economic times. The credit can be claimed retroactively for qualifying quarters in 2020 and 2021, for up to three years from the date the initial tax return was filed. Eligible employers can receive up to 50% of qualified wages paid per quarter (up to $10,000 per employee) for wages earned between March 13, 2020, and December 31, 2020. In 2021, the credit rate increased to 70%, allowing businesses to receive up to $10,000 per employee per quarter until September 30, 2021.

To qualify for the ERC, employers must have experienced either a full or partial suspension of operations due to a government order related to COVID-19 or a significant decline in gross receipts when compared to the same quarter in 2019.

Common ERC Scams

1. False ERC Advisors: Scammers may pose as ERC experts and offer to help businesses apply for the credit at little or no cost. They may request an upfront fee for their services but fail to file documents correctly, pocketing the money instead.

2. Incorrect ERC Claims: Fraudulent tax specialists may submit incorrect ERC claims to the IRS on your behalf, leading to tax fraud and liability for your tax return information.

3. Identity Theft: Scammers may attempt to steal personal information such as Social Security or bank account numbers to file for credits using your identity.

4. Filing False Claims: Fraudsters may submit fake documents and records to claim the credit, resulting in the government paying out funds that were not rightfully earned.

5. Fake Employee Information: Scammers may create false employees or use the identities of other individuals to fraudulently claim credits.

6. Inflating Wages: Fraudsters may falsify payroll records and report higher wages than what was actually paid to employees in order to receive a larger credit.

7. Claiming Credits for Ineligible Employees: Scammers may try to claim employee retention credits for ineligible employees, such as family members or contractors who are not considered actual employees under IRS guidelines.

How to Avoid ERC Scams

1. Be cautious with any inquiry: Always be wary of requests to provide personal details or financial information, especially through email, text messages, or phone calls.

2. Contact the IRS when in doubt: If you are unsure about the legitimacy of an IRS notice or communication, contact the IRS directly to confirm its authenticity.

3. Vet service providers thoroughly: Research professional advisors and ensure they are registered with the relevant governmental bodies before engaging their services.

4. Educate yourself on ERC basics: Understand the eligibility criteria and the process of claiming the credit to identify red flags or inaccurate information provided by third parties.

5. Inquire about audit defense services: Ensure that the service provider or tax specialist can support you in the event of an audit. Obtain a written agreement on audit defense assistance.

6. Seek clarity on payment structure: Understand how the third party will be paid and be cautious of upfront fees or promises of refunds without knowing your situation.

7. Report scams to the IRS: Forward suspicious emails to phishing@irs.gov and report IRS imposter scams to the Treasury Inspector General for Tax Administration by calling 800-366-4484.

Protecting your business from ERC scams requires due diligence, secure handling of sensitive information, and a cautious approach to engaging service providers. By being aware of common scams and implementing the preventive measures mentioned above, you can safeguard your business from potential financial and reputational damage. Always consult with a reputable ERC professional to navigate the process and ensure your business receives the financial relief it deserves.