The IRS has issued increasing warnings urging taxpayers to beware of ads that promise big money for claiming the employee retention tax credit.
The ERC provides needed relief to help businesses affected by the pandemic; however, the incentive has also catalyzed the creation of a cottage industry of ERC providers that profit from calculating huge benefits for taxpayers who may not actually qualify based on the letter of the law. Warnings regarding Employee Retention Credit claims feature on the IRS’s 2023 Dirty Dozen list, IRS News Releases and in recent updates to the IRS’s Frequently asked Questions on their ERC page.
The IRS has signaled that they have entered a new phase of increased scrutiny on ERC claims. Going forward, there will be more emphasis placed on auditing claims, investigating fraud and identifying of promoters of fraudulent claims. Taxpayers who are discovered to improperly claim the ERC must pay the credit back, possibly with substantial penalties and interest.
These five tips can help ensure a taxpayer does not become a victim of an unscrupulous ERC promoter:
- Beware of Aggressive Marketing: Radio, television, online ads, unsolicited calls or direct mailings made to look like official IRS correspondence promising “$26,000 per employee” and an “easy application process,” are all tactics to be wary of.
- Beware of Quick Determinations of ERC Eligibility: ERC eligibility cannot be determined in minutes; determining eligibility for a claim involves reviewing an organization’s gross receipts and/or conducting an in-depth analysis of “more-than-nominal” impacts from government orders.
- Beware of Firms Unwilling to Sign as a Paid Preparer: If preparers refuse to prepare and sign the amended Forms 941-X, the taxpayer is taking on the sole risk for the claim.
- Beware of Fees Based on a Percentage of the Refund: Fees based on a percentage of the refund incentivize providers to calculate higher ERC claims.
- Beware of Providers Who Do Not Provide Documentation: Claiming the ERC is a complicated procedure that requires careful review of federal, state and local orders to determine eligibility as well as complex entity aggregation and full-time employee rules. Providers should be able to provide detailed documentation citing specific government orders that support a taxpayer’s eligibility and their calculations.
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