Knowing the Signs of an Employee Retention Credit (ERC) Scam

Written By Olena Ruth

The ERC (Employee Retention Credit) is a tax credit that was introduced during the COVID-19 pandemic to help businesses keep employees on the payroll. However, there have been reports of ERC scams, where third parties falsely claim that businesses are eligible for the credit.

The IRS has issued several warnings about ERC scams and has also taken steps to crack down on the promoters of these scams.

In July 2022, the IRS issued a legal advice memorandum that clarified the eligibility requirements for the ERC. The memorandum also highlighted that supply chain disruptions do not qualify an employer for the credit unless they are due to a government order.

The IRS is urging businesses to be aware of the warning signs of ERC scams. These signs include:

  • Unsolicited calls or advertisements mentioning an “easy application process.”

  • Statements that the promoter or company can determine ERC eligibility within minutes.

  • Large upfront fees to claim the credit.

  • Fees based on a percentage of the refund amount of the Employee Retention Credit claimed.

  • Preparers refusing to sign the ERC return being filed by the business, exposing just the taxpayer claiming the credit to risk.

  • Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group's tax situation.

  • The IRS also sees wildly aggressive suggestions from marketers urging businesses to submit the claim because there is nothing to lose.

If you are considering claiming the ERC, it is essential to do your research and work with a reputable tax professional. You can find more information about the ERC on the IRS website.

How to protect yourself from ERC scams:

  • Work with a trusted tax professional. Eligible employers who need help claiming the credit should work with a trusted tax professional; the IRS urges people not to rely on the advice of those soliciting these credits. Promoters who are marketing this ultimately have a vested interest in making money; in many cases they are not looking out for the best interests of those applying.

  • Request a detailed worksheet explaining ERC eligibility and the computations used to determine the ERC amount. This will help you understand your eligibility and ensure that you are not overpaying.

  • Don't apply unless you believe you are legitimately qualified for this credit. If you are not sure whether you qualify, you should consult with a tax professional.

If you have claimed the ERC through a third party, please contact us so that we can help you resolve any possible underpayment or erroneous refund that occurred. 

Olena Ruth | Tax Defense Attorney

Olena represents the taxpayers in federal and state tax audits, collection matters, administrative appeals, and the U.S. Tax Court’s cases. She is actively engaged in Tax Sections of the American Bar Association and Colorado Bar Association. She serves as Colorado Bar Association’s pro-bono attorney and liaison to the Internal Revenue Service. Her speaking engagements include presentations on tax matters in family law, employment tax issues, and communication with the IRS.

Olena Ruth

Tax Defense Attorney

Olena represents the taxpayers in federal and state tax audits, collection matters, administrative appeals, and the U.S. Tax Court’s cases. She is actively engaged in Tax Sections of the American Bar Association and Colorado Bar Association. She serves as Colorado Bar Association’s pro-bono attorney and liaison to the Internal Revenue Service. Her speaking engagements include presentations on tax matters in family law, employment tax issues, and communication with the IRS.

https://ruthtaxlaw.com
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