Amidst the economic uncertainty caused by the COVID-19 pandemic, the Employee Retention Credit (ERC) was introduced as a lifeline for businesses struggling to keep their employees on payroll. However, with its generous benefits and complex eligibility rules, the program has unfortunately attracted a wave of scammers and unscrupulous promoters looking to exploit unsuspecting businesses.
This article aims to shed light on the growing problem of ERC fraud and provide businesses with the information they need to safely navigate the program and avoid costly pitfalls.
The Rising Tide of ERC Fraud
The Internal Revenue Service (IRS) recently sounded the alarm on a surge of improper ERC claims. This prompted a moratorium on processing new claims until December 31, 2023, to give the agency time to implement stricter compliance measures and protect honest businesses from scams.
The IRS is concerned about two main trends:
- Aggressive promotion by marketers and promoters who lure businesses into filing illegitimate claims for hefty contingency fees.
- Misinterpretation of eligibility criteria, particularly around supply chain disruptions and business decline, leading to claims filed by ineligible businesses.
The Risks of Improper ERC Claims
Filing an improper ERC claim can have severe consequences for your business, including:
- Repayment of the credit, potentially with penalties and interest, putting you in a worse financial position than before.
- Audit and investigation by the IRS, leading to additional fines and legal trouble.
- Damaged reputation and loss of trust from clients and partners.
Protecting Your Business from ERC Scams
To avoid falling victim to ERC scams, it’s crucial to take the following steps:
- Do your own research: Don’t rely on promises from promoters. Thoroughly review the official IRS guidelines to understand the eligibility requirements and complexities of the credit.
- Seek professional advice: Consult with a trusted tax professional, not a marketer or promoter, to analyze your business’s specific situation and determine if you qualify for the ERC.
- Beware of contingency fees: If a promoter demands a hefty percentage of your potential credit as a fee, it’s likely a scam. Legitimate advisors charge reasonable fees based on their services.
- Verify information independently: Don’t blindly accept claims about eligibility from promoters. Cross-check information with official IRS resources.
What to Do if You Think You Filed an Improper Claim
If you have concerns about your ERC claim, the IRS offers options:
- Withdraw the claim: This is especially advised if you haven’t yet received the credit and believe you may not be eligible.
- Await the IRS ERC settlement program: In the fall of 2023, the IRS will launch a program allowing businesses to repay improper claims and avoid penalties.
- Seek immediate professional guidance: Our tax professionals are here to help! If you have any concerns about your ERC claim, please call for a consultation. We’ll assess your situation and guide you through the best steps to take.
Conclusion
The Employee Retention Credit can be a valuable tool for businesses recovering from the pandemic’s impact. However, navigate the program with caution. Be wary of scams, understand the risks, and seek professional guidance to ensure you claim the credit legitimately and safeguard your business from financial and legal repercussions.
Remember: Your financial well-being matters. Don’t let scammers exploit the ERC program. Take control, educate yourself, and protect your business with responsible and informed actions.
By following these recommendations, you can navigate the ERC program safely and successfully, leveraging its benefits while safeguarding your business from fraud.
