When the COVID-19 pandemic was in full bloom, thousands of companies had to deal with force reductions and outright shutdowns. As a response, the US federal government attempted to face the crisis by reducing the negative impact of the economic repercussions via something called the Employee Retention Credit, or ERC for short. But What is ERC? Is ERC a scam? Or is ERC legit?
First of all, it's a legitimate government program for qualified companies, to obtain a fully refundable credit on taxes so they could continue to meet payroll and keep their doors open. Unfortunately, as happens in most crises, unsavory parties have attempted to benefit from the situation by pretending to be qualified agents who can help business owners get credit from the government.
The IRS (Internal Revenue Service) has warned honest owners about fly-by-night organizations that use misleading tactics to get money from companies not qualified to receive ERC refunds. All owners should be aware of these scams and similar schemes in which unscrupulous agents claim to be able to get tax credits based on wages that have already been paid to workers.
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ERC Fraud Claims
The Most Common ERC Scams
1. Bogus "Consultants" Or "Agents" For ERC Claims
Several ERC credit scams are operated by folks who do not have a clue about the ERC or the specific tax codes that apply to it. They do a great job of marketing and advertising, though. Plus, the victims engage in wishful thinking, a poisonous practice for companies that pay big bucks and later get a rejection letter from the IRS. Always check the reputation of firms who offer to "help" you get a tax credit from the government.
2. Filing Unsubstantiated Claims Based On Questionable Eligibility
Just because you lost income during COVID does not grant you eligibility for the ERC refund. Further, even if the government ordered you to shut down, you still might not meet the narrow definition of the applicable tax law. The IRS can reject your claim despite what the scam artists promise. Do your due diligence and beware of over-confident service providers who promise the moon.
3. ID Theft
Many scammers want more than a fee for their fake services. They also seek to collect your company's sensitive data by posing as experts on the ERC issue. Always check claims made by so-called "expert consultants."
4. Submitting False Claims
Some bold scam artists fill out forms with incorrect information when they file your ERC claim. That can lead to serious legal trouble for your company and you. Read all forms before they are sent to the government. Fraudulent tax claims are criminal, so don't be left holding the ball.
5. Presenting Data for Fictitious Employees
Some ERTC scam artists inflate the number of employees to get larger refunds. However, the US government can verify the real data if they wish, which leaves you, the scam victim, in a terrible place. The IRS can hold you responsible for the fraudulent submission.
6. Inflating Wage and Salary Figures
Some illegitimate scam artists file bogus salary data to get larger refunds, thus hitting you with a more significant fee. Always review wage data before sending in forms to the IRS.
7. Attempting to Get Refunds for Non Qualified Employees
Scammers like to count every employee in a claim, whether or not the workers were eligible for the credit. Remember, not all workers qualify to be included in the ERC refund calculation. Con artists don't care. They include everyone on your payroll.
Common Warning Signs of Fake Practitioners
Perpetrators of ERC scams operate from so-called "ERC mills," which the US Treasury Dept. and Internal Revenue Service have closely monitored. So far, more than 11,000 submissions have claimed the ERC credit fraudulently. Here are the red flags the IRS noted.
Any single warning sign might not reveal an obvious scam. However, if you see more than one, assume the worst. Sales promises should be checked out. If you don't, you might suffer a business suspension, land in legal and financial trouble with the IRS, or risk a prison sentence.
How to Avoid a Employee Retention Credit Scam
1. Seek Experienced & Well-Respected Service Providers
Recovery-type businesses are short-term enterprises by nature, so it's no surprise that their primary mission focuses on getting profits from clients who still need to qualify for the credit.
Such companies are more likely to perpetrate ERC schemes. Many new firms are totally honest and actually assist clients with tax matters. But many are scammers, setting their sights on gullible owners.
If you want honesty about your chances for ERC eligibility and straightforward submission of a claim, hire an experienced, reputable tax expert with a history of achieving good results with IRS-related claims.
2. Get Evidence That Your Company Qualifies For The ERC Credit
When a firm offers you quick money, a large refund, or a tax credit without even knowing anything about your company, be suspicious. It's a red flag, for sure. Qualifying for the ERC means meeting specific criteria, like proving decreased cash flow and having paid wages/salaries during the pandemic. Only use a firm that can connect wages, gross receipts, and the ERC. Find a competent provider.
3. Only Deal In Person Or Over The Phone
It's harder for scammers to operate via phone. They prefer cyberspace. You can easily expose their schemes when you speak to their reps directly. If they refuse a phone chat, don't work with them. Plus, avoiding phones is another way for scammers to conceal their geographic location so they can hide from you when your claim is denied, but you have already paid them a hefty fee.
4. Ask If They'll Defend You Against Potential Audits By The IRS
Legit firms are happy to defend their clients in the event of an IRS audit after an ERC claim. Scammers don't care, though, because they don't defend clients if the claim is found to be wrong or poorly prepared. ERC tax credit scam practitioners won't be there for you to provide audit defense if needed.
5. Ask For Details About How They Get Paid
How do ERC filing firms get paid, and when do they collect their client fees? Some pay customers upon filing, while others employ a half-now-half-later or "wait until the IRS pays" system. The firm's method speaks volumes about its legitimacy. Reputable tax advisors tend to pay clients upfront when the documents are submitted to the IRS.
Another telltale sign is the means of payment. Look at whether their services are broken out on a readable invoice or grouped as one billable entry. If they want money immediately sent by wire to a third party, that's also a good chance they are fraudulent and can get you in trouble with the IRS.
6. Insist They Tell You Their Qualifications
Ask service providers the specific reasons they believe your company is eligible for the ERC. Question them about their past success and credentials to support their answer to the question. Demand detailed, clear explanations. For example, do they have verifiable testimonials regarding their achievements in getting clients ERC money?
Ask whether their employees are former IRS agents or have worked for other US government departments. What is the educational background of their staff members? What's their win percentage in ERC cases? Do team members hold relevant professional licenses, diplomas, or industry certifications?
Keep in mind that most scam artists are good talkers by recoil in fear when you ask them for proof and verification of their claims.
7. Find Out If They Have A History Of Good Results
Legit providers are willing to admit having lost some claims but should have a high win percentage overall when helping clients with tax issues. Professionals study their losses and learn from them in order to win more cases in the future. You should not be reluctant or shy about asking service providers about their past accomplishments and losses.
8. Don't Sign Anything Until Learning The Specific Qualifying Criteria
There are several moving parts to the Employee Retention Credit, but you should know the basics, which include:
- Each application is for a specific three-month period during 2020 and 2021.
- Your company must have stopped operations due to an executive order, specific ordinance, or legal statute.
- Your organization must have endured substantially reduced revenue during the applicable period.
- If you know the above facts, you're less likely to submit an erroneous return to the IRS.
9. Get A Detailed Timeline For Submission, Processing, and Receipt Of Your ERC Payment
This point is part of the ERC service's mandate to offer a detailed, understandable payment schedule. A legit service provider should be able to give a general time estimate for getting the credit.
10. Learn Whether They Finance The Amount Of Your ERC Payment Before IRS Remits It
Beware of firms that don't offer upfront refunds. Legitimate services will usually give clients an immediate payment contingent upon IRS credits that can go directly to the firm. It's much like tax prep companies that give advance refunds to people who have a refund coming to them.
Take These Actions if You Get Scammed
Be proactive by contacting the IRS before they contact you.
- If the scammers pretended to be IRS employees, contact the Inspector General (IG) for Tax Administration. This Treasury Dept. representative oversees IRS-related matters. The direct phone is 800-366-4484.
- Send every suspect email message to PHISHING@IRS.GOV
- Go to FTC.GOV/COMPLAINT and file an official complaint against the scam company. It's simple to do and helps protect others too.
- Safeguard your assets by contacting financial institutions and changing all your security questions, passwords, and account numbers immediately.
- Run your credit now. Consider placing a fraud alert on it to prevent the scammer from abusing your data.
- Avoid trouble by staying informed about the newest scams and schemes.
Get Assistance from a Trustworthy Company
Don't respond to solicitations if you think you're potentially eligible for the ERC. Instead, select a reputable provider from the many tax accounting organizations in the US. We have done a deep dive and researched the best ones based on specific qualifications.
Here is a list of the top 3 providers. ERC Specialists wins the top spot because they have successfully processed and received the most legitimate refunds and have excellent online reviews. Omega Accounting Solutions comes in at a very close second option because of their legitimacy and customer service. ERC Today comes in third.
We are confident in recommending these providers perform an ERC analysis for you, but always remember to do your research on a company if you consider hiring them.