Released in March 2020, the Employee Retention Credit (ERC) was created as part of the CARES Act in response to the economic impact of the pandemic. This program was designed to encourage employers to keep their employees on the payroll, even if they had to suspend or restrict business operations due to COVID-19 executive orders or experienced a significant decline in revenue. However, many businesses have not been properly informed of the eligibility criteria for the ERC, which has led to the rise of scams and fraudulent schemes purporting that virtually every company is eligible.
The proliferation of so many opportunistic ERC mills puts a permanent stain on a COVID-19 stimulus program that has been a savior for so many businesses negatively impacted by the pandemic. These predatory companies will often use aggressive marketing tactics offering to help businesses, with inflated promises of maximizing the credit or guaranteeing qualification regardless of the company’s facts and circumstances. Many of these mills have little to no experience with the ERC program and may not even be qualified to offer tax or payroll advice. To exacerbate matters, they usually take a large percentage of the credit as their fee and may even file fraudulent claims for the credit on behalf of the business (i.e., where no eligibility whatsoever is met or payroll figures are inflated), which can result in fines, penalties, and legal action.
The Internal Revenue Service (IRS) has been cracking down on these scams and has included them on its annual list of the “Dirty Dozen” tax scams. IRS Commissioner Danny Werfel has said: “While the credit has provided a financial lifeline to millions of businesses, there are promoters misleading people and businesses into thinking they can claim these credits. There are very specific guidelines around these pandemic-era credits; they are not available to just anyone. People should remember that the IRS is actively auditing and conducting criminal investigations of these false claims. We urge honest taxpayers not to be caught up in these schemes.”
Given the limited history of the ERC, it is critical to consult with highly qualified tax and legal professionals to determine ERC eligibility and file a legitimate claim for the credit. Any business owner or manager interested in claiming the ERC, or reviewing a prior claim, should conduct thorough research on any firm they engage. Just because a company advertises on national television does not mean it is legitimate. In the tax industry, we have seen ERC mills present themselves as ‘experts’ or ‘consultants,’ yet they are often sales and marketing firms in disguise that outsource to no-name CPA firms or attorneys who provide aggressive and poorly documented eligibility analyses.
So, what should employers look for in an advisor? Unlike mills, expert ERC firms are led by CPAs and tax attorneys with extensive experience in the legal test related to the ERC. Such professionals will ensure that all eligibility criteria are met for each applicable period before submitting a claim for the credit. They will also provide a detailed, CPA-certified, audit-ready report to their clients detailing their eligibility and wages claimed. Additionally, and perhaps just as important with the sensitivity around the ERC, they will regularly advise potential clients to not claim the credit when they do not have a clear path to eligibility.
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Sagemont Tax has helped businesses across the country claim the ERC and has received accreditation from the Better Business Bureau with an A+ rating.
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