IRS warns businesses to beware of Employee Retention Credit scams

The IRS is warning taxpayers to carefully review the guidelines for claiming the Employee Retention Credit (ERC) before attempting to do so. The ERC continues to be a worthwhile tax opportunity, but only for those who meet the eligibility requirements.

Third parties continue to aggressively promote ERC schemes on radio and online, charging large upfront fees or contingent fees based on the refund amount. Tax professionals also report receiving undue pressure from clients to claim the ERC due to these scams, while ineligible filers are still attempting to claim the credit during the 2023 tax filing season.

The IRS warns that improperly claiming the ERC could result in taxpayers having to repay the credit and potential penalties and interest. Taxpayers should be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns.

 To read the recent IRS notices:

3/7/2023 - Professional Responsibility and the Employee Retention Credit (PDF)

4/4/2023 - IRS Tax Tip 2023-44: Employers: Watch out for Employee Retention Credit schemes

"Anyone who is considering claiming this credit needs to carefully review the guidelines. If the tax professional they're using raises questions about the accuracy of the Employee Retention Credit claim, people should listen to their advice,” said Acting IRS Commissioner Doug O'Donnell. “The IRS is actively auditing and conducting criminal investigations related to these false claims.”

If you believe you have erroneously received this credit, contact your tax advisor to discuss your situation and the opportunity available to amend your tax return.

For ERC eligibility, employers must have either:

• Sustained a full or partial suspension of operations due to COVID-19-related orders from an appropriate governmental authority during 2020 or the first three quarters of 2021.
• Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021.
• Qualified as a recovery startup business for the third or fourth quarters of 2021.

Note: Eligible employers cannot claim the ERC on wages reported as payroll costs in obtaining Paycheck Protection Program loan forgiveness or that they used to claim certain other tax credits.

The IRS advises employers to report illegal tax-related ERC claims and activities by submitting a completed Form 14242, Report Suspected Abusive Tax Promotions or Preparers, and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations.

Employers should also report instances of fraud and IRS-related phishing attempts to the IRS at phishing@irs.gov  and the Treasury Inspector General for Tax Administration at 800-366-4484.

As per the latest warnings issued by the IRS regarding third-party advisors promoting employee retention credit claims, it is imperative for businesses to exercise caution.

However, businesses that are able to substantiate their eligibility should not hesitate to file for an ERC refund. It is advisable, as suggested by the IRS, to consult with a reputable and trusted advisor who can help you navigate your specific circumstances. Contact your Boyer & Ritter tax advisor to learn more.