IRS Issues Renewed ERTC Warning

The Employee Retention Tax Credit is a refundable federal tax credit designed to reward businesses that kept staff employed during the uncertainty of the COVID-19 pandemic. While those chaotic days are far in the past, it is still possible for companies with eligible activities to claim the credit. In fact, it is possible to claim the credit up to three years after the original payroll taxes were due. This means eligible companies can claim the 2020 credit until April 15, 2024, and 2021 until April 15, 2025. While useful it has opened the door to aggressive broadcast, direct mail, and online marketing efforts that are wildly misrepresenting and exaggerating which businesses can qualify. The issue is made worse when these companies charge high fees for the credit, only to have them denied, leaving the company on the hook.

In the past, the IRS has issued warnings about these schemes and the potential consequences to businesses if the claims are denied. Since these companies continue the aggressive marketing tactics, the IRS recently issued another warning which provides additional information. Included are details on signs of aggressive marketing, details on how promoters lure victims, and steps on how taxpayers can protect themselves. To help clients, prospects and others, Wilson Lewis has provided a summary of the key details below.

ERTC Aggressive Marketing

It’s no surprise that the promise of a large refundable tax credit would immediately attract the interest of business owners and managers. However, the IRS has provided several tips to help identify these aggressive and often unethical marketing campaigns. This includes unsolicited advertisements mentioning an easy application process, promises of determining eligibility within minutes, large upfront fees to claim the credit and fees based on a percentage of the refund. In addition, it is important to be wary of those claiming a business is eligible before asking any questions and encouragement to submit the claim because there is nothing to lose.

The truth is these latter claims are false. The ERC is a complicated credit that requires a careful review of operational details before eligibility can be determined. In addition, for those who submit a claim without being properly qualified it is possible the credit may have to be repaid along with substantial interest and penalties. The IRS has also warned these companies may also be at risk of someone using the credit as a play to steal the taxpayer’s identity or tax a portion of the improperly claimed credit.

How Promoters Lure Victims

The IRS also provided information on the various tactics used to lure companies into applying for the credit including:

• Aggressive Marketing – This is evidenced in the various places where ERC mills advertise including radio, television, online, through phone calls, and even text messages.
• Direct Mail – Some send out fake letters from the fictitious “Department of Employee Retention Credit” which look very similar to an official IRS correspondence urging immediate action.
• Omission of Key Details – Some fail to accurately promote or explain eligibility requirements making broad arguments that all employers are eligible without evaluating individual circumstances.
• Payroll Protection Program (PPP) Participation – Many promoters fail to mention that taxpayers can not claim the ERC on wages reported as payroll costs when applying for PPP loan forgiveness.

How Businesses Can Protect Themselves

The easiest way is to only work with a trusted tax advisor. Many of these ERTC mills have only been in business a few short years and exclusively focus on the ERTC. In some cases, there are not even Certified Public Accountants (CPAs) working in the business. Unfortunately, these companies have a vested interest in making money and are not concerned about the taxpayer. Finally, it is a good idea to become familiar with the eligibility criteria of the credit before making any decisions to apply.

Contact Us

The ERC can be a lucrative tax savings opportunity, but only for those who qualify. The amount of misinformation in advertising has increased and businesses need to beware. For this reason, it is essential to work with a trusted and qualified tax professional who can evaluate eligibility and guide you through the process. If you have questions about the Employee Retention Tax Credit, or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.