Watch Out for Fake Employee Retention Credit Promotions

April 4, 2023

Since the beginning of 2020, LMC has made significant efforts to reach out to every client about the Employee Retention Credit (ERC) program and, based on eligibility, the significant financial benefits it can provide. Recently, there have been a proliferation of companies promoting ERC credits that appear too good to be true.


These companies have been advertising on-line, in print and on the radio. The IRS is warning companies to be careful to whom they respond. It is possible that the company marketing their expertise in this credit is making false claims, or exist solely to collect your corporate and personal information.


The Employee Retention Credit (ERC) is a refundable tax credit for businesses that continued to pay employees during the COVID-19 pandemic, or had significant declines in gross receipts from March 13, 2020 to Dec. 31, 2021. You may be aware of widely circulated promotions on-line, in print and on the radio, touting refunds involving the ERC. The IRS says some of these entities are a blatant and devious attempt to con ineligible people to claim the ERC. The problem is widespread enough to make the IRS’s annual “Dirty Dozen” list.


The promotions are mostly based on inaccurate information related to eligibility for, and the computation of, the credit. The aggressive marketing by promoters is misleading people and businesses into thinking they can claim these credits. However, there are very specific guidelines around these pandemic-era credits that provided a legitimate financial lifeline to millions of businesses.


According to the IRS, when properly claimed, the ERC is a refundable payroll tax credit designed for businesses that continued paying employees during specific eligibility periods pertaining to the COVID-19 pandemic. The credit is not available to individuals. Despite the fact that many companies legitimately claimed the credit, there are websites and advertisements pushing companies to make false credit claims. The advertising touts how easy it is to qualify for the ERC, lending an air of legitimacy to abusive claims for refunds.


How the con works


Shady promoters make broad arguments suggesting that all employers are eligible without evaluating an employer’s individual circumstances. These promoters do not alert businesses that they can’t claim the ERC on wages that were reported as payroll costs in obtaining Paycheck Protection Program loan forgiveness. Even worse, some dishonest ERC advertisers exist solely to collect information that the scammers use for identity theft.


IRS is stepping up their enforcement


As always, taxpayers are ultimately responsible for the accuracy of the information on their tax return. Willful filing of false information and fraudulent tax forms can lead to serious civil, and possible criminal, penalties. The IRS is stepping up ERC enforcement action and actively auditing and conducting investigations related to these false claims. The IRS Small Business/Self-Employed division has been training its auditors for the sole purpose of examining ERC claims. In addition, the IRS Criminal Investigation Division is seeking out promoters of these fraudulent claims. If you have not yet pursued your ERC and feel that you might be eligible, please reach out to your LMC professional for the proper guidance.


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