The Employee Retention Credit (ERC) is a credit available to eligible employers that paid qualified wages to employees from March 12, 2020 to December 31, 2021. Generally, the credit is available to businesses that:

·      Were shut down by government order due to the COVID-19 pandemic during 2020 or the first three quarters of           2021, or

·      Experienced the required decline in gross receipts during the eligibility periods during 2020 or the first three                 calendar quarters of 2021, or

·      Qualified as a recovery startup business for the third or fourth quarters of 2021.

The credit is claimed by filing amended quarterly employment tax returns (Form 941-X) for the eligible periods.

Over the last couple of years, we have seen a proliferation of companies claiming to help businesses get the ERC. These companies claim that they are tax credit specialists who can help their clients receive the credit. As “specialists” they falsely claim they possess the knowledge to qualify a business for the credit even though they have been advised by their CPA that they do not quality.

We ran the numbers for each of our business clients to determine if they qualified for the credit, and filed amended employment tax returns for those who did qualify. Each of our clients who qualified and filed to claim the credit received refunds. Unfortunately, the tax credit shops are relentless in their pursuit of businesses using their marketing machines to contact businesses. Several of our clients who did not qualify are getting calls, emails and seeing ads on TV about the availability of the credit. We are warning our clients that these tax credit shops are unscrupulous and are filing claims for taxpayers who do not legitimately qualify for the credit.

The proverbial shoe will eventually drop on these fraudulent ERC filings. The abusive ERC claims are number one on the IRS’s 2023 Dirty Dozen Tax Scams list. In a recent New York Times article, IRS deputy commissioner, Douglas O’Donnell was quoted as saying, “These (tax credit shops), are Johnny-come-latelies, showing up and they’re pushing this product, pushing this activity in a way that is unethical. It is drawing businesses into a trap, that they will then be claiming a credit that they are not entitled to.”  The article went on to say that “Mr. O’Donnell warned that those who received refunds but were ineligible for the money would have to repay the funds with penalties. He said the IRS is aggressively auditing taxpayers who collected the refunds and the firms that processed them.”

In a recent news release the IRS (IR-2023-105, May 25, 2023) warned taxpayers to be wary of:

·      Unsolicited ads, calls emails or text from someone you don’t know.

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

·      Large upfront fees to claim the credit.

·      Fees based on a percentage of the refund amount of the ERC claimed.

·      Statements from the promoter that you qualify for the credit before any discussion about your tax situation.

·      Statements from the promoter urging you submit the claim because there is nothing to lose. In reality, those                 improperly receiving the credit could have to repay the credit including substantial interest and penalties.

The IRS has been very clear that they are cracking down on these abusive credit shops and the taxpayers who received refunds they were not entitled to, so buyer beware.

-       Robert “Butch” Rogers, CPA