Cautionary Measures for Employee Retention Credit (ERC) Claims

In the ever-evolving landscape of tax credits, the Internal Revenue Service (IRS) has issued a stern warning to businesses regarding the Employee Retention Credit (ERC), also known as the Employee Retention Tax Credit or ERTC. While a legitimate and valuable pandemic-era tax credit, the ERC has recently become a target for aggressive marketing tactics that may mislead businesses into making improper claims.

Key Points:

1. Risk of Improper Claims: The IRS is intensifying efforts to combat fraud related to the ERC through audits and criminal investigations.

2. Severe Consequences: Improperly receiving the ERC can lead to severe consequences, including the requirement to repay the credit along with potential penalties and interest.

3. Specific Eligibility Requirements: To properly claim the ERC, businesses must meet specific eligibility requirements, including factors like a full or partial suspension of operations due to COVID-19-related government orders or a significant decline in gross receipts during specific periods.

4. Red Flags for Aggressive Marketing Tactics:

• Unsolicited calls or advertisements promising an "easy application process."

• Claims of instant determination of ERC eligibility.

• Demands for substantial upfront fees or fees based on a percentage of the ERC refund amount.

• Promoters unwilling to sign the ERC return and disclose identifying information.

• Claims of eligibility without a thorough evaluation of the business's specific circumstances.

• Ineligibility for ERC on wages reported as payroll costs for Paycheck Protection Program loan forgiveness.

Protective Measures for Businesses:

1. Work with Trusted Professionals: Collaborate with trusted tax professionals for reliable guidance on ERC eligibility.

2. Detailed Worksheets: Request a detailed worksheet explaining ERC eligibility and computations.

3. Apply Only if Eligible: Apply for the ERC only if the business genuinely meets the eligibility criteria outlined on IRS.gov; seek professional advice when in doubt.

Reporting Suspected Abuse: Businesses encountering ERC abuse or suspecting improper promotion are encouraged to report it to the IRS by submitting Form 14242, "Report Suspected Abusive Tax Promotions or Preparers."

By staying vigilant and exercising caution, businesses can avoid falling victim to aggressive marketing schemes surrounding the ERC and ensure compliance with IRS regulations.

For more information or personalized guidance, please feel free to contact our team at ECS Financial Services.

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About the Author - ECS Financial Services' shareholder, Tobey Wilson, is a Certified Public Accountant (CPA) and Certified Lease and Finance Profession (CLFP). He joined ECS Financial Services in 2002 as an accounting intern, after receiving his bachelor's degree from Indiana University.

Tobey became an ECS shareholder in January 2015. Tobey's expertise includes financial statement compilations, reviews and audits, ERISA audits, financial projections, business and personal tax preparation, and management consulting, as well as personal and corporate tax planning.

Tobey likes working at ECS because he enjoys the people and feels they are like family. Tobey is active in his church and his son’s cub scouts, where he holds the position of Treasurer, and he enjoys spending his free time with his family traveling and visiting presidential museums and homes. Their goal is to visit every state!