When you run scared at the mention of ERC, you have the right to. What’s with the aggressive ERC marketing? If you didn’t get the gist yet, it’s the fact that some tax professionals have been using aggressive marketing tactics to convince business owners to claim the Employee Retention Credit. And it could land you in a huge trouble. How can you claim the ERC properly and protect yourself from being prosecuted?
Read more to find out…
The Employee Retention Credit is a refundable COVID-era tax credit created to help employers who kept paying employees while shut down due to COVID-19-related government orders or had an essential decline in gross revenue during the eligibility period.
Beware of ERC scam.
While the Employee retention credit is a viable tax strategy designed to help employers keep their business floating, it has quickly risen to become one of the worst nightmares of many business owners. Even the IRS continues to issue warnings to protect business owners from falling victim to multiple scam actions.
Fraudulently claiming an ERC can lead both you and the tax professionals, promoting the credit to a number of criminal charges.
The IRS has issued warnings for business owners to watch out for misleading claims involving the Pandemic Era Tax Credit. In addition, the IRS has also beefed up its audit and criminal investigations linked with the ERC claims. This involves both businesses claiming the ERC and tax professionals promoting the viability of the credit.
What’s even more scary is that these aggressive marketers could also use the ERC scheme to access your Tax Identification Number for additional fraudulent purposes.
In reality, the Employee Tax Credit is a complex credit that requires expert eyes before applying. Any business owner considering claiming an ERC should not only be thorough about their eligibility for the credit but also the tax expert promoting the credit.
IRS Warning Signs Of Aggressive ERC Marketing
The IRS has issued a comprehensive list of aggressive marketing techniques that business owners should be aware of when considering using such services. These include:
- Unsolicited calls or adverts mentioning an easy ERC application process
- Claiming that the company or promoter can determine ERC eligibility within minutes or before discussing the employer’s tax situation
- Requires large upfront fees to claim the credit or fees based on a percentage of the refund amount of ERC claimed
- The promoter makes aggressive claims, telling businesses to claim the ERC because they have nothing to lose.
- Promoters encourage business owners to ignore the advice of their trusted tax experts.
How Promoters Lure Victims
Leaving out key details: an example is promoters not being able to explain eligibility requirements or how to calculate the credit accurately. They make broad claims suggesting that all employers are eligible and omit that employers can’t claim the ERC on wages that they reported as payroll costs if they received Paycheck Protection Program loan forgiveness.
Aggressive marketing: you’ll find this kind of marketing in different places, including television, radio, online, as well as text messages and phone calls.
Direct emailing: some ERC promoters send letters to taxpayers from non-existent groups such as the Department of Employee Retention Credit. Scammers will create these letters to copy official IRS correspondence or an official government mailing urging immediate action.
How To Claim The ERC Legally
Determining your business’ ERC eligibility requires a careful review of your tax situation, payroll records, gross receipts, and other records relevant to your business.
You qualify for the ERC if you paid wages to some or all of your employees after March 12, 2020, and before January 1, 2022. The credit amount you get also depends on when the impact on your business occurred.
In general, the ERC is only available to those that:
- Were shut down by a government order because of the COVID-19 pandemic either during 2020 or the first three quarters of 2021
- Experienced a required decline in gross receipts during the eligibility period either in 2020 or for the first three quarters of 2021
- Qualified as a recovery startup business for the third or fourth quarters of 2021
If your business is eligible and didn’t claim the credit when you filed your original employment tax return, you can claim the credit by filing adjusted employment tax returns.
The Employee Retention Tax Credit is available to all employees irrespective of their size and including tax-exempt organizations. However, there are two exemptions.
- Small businesses who take small business loans
- State government, local government, and their instrumentalities
Are There Limitations To Your ERC Claims?
Some limitations apply when filing for your ERC. For instance, you can’t claim the ERC
on wages that were reported as payroll costs for Paycheck Protection Program loan forgiveness. However, qualified wages for the ERC do not include payroll costs connected with shuttered venue operator grants and restaurant revitalization grants.
How Can You Protect Your Businesses And Others From Aggressive ERC Marketing?
The IRS has provided a set of recommended steps that employers should take to protect themselves from ERC marketing traps.
Work with a trusted tax professional: eligible employers who need help claiming the ERC should work with trusted tax experts. The IRS encourages people not to rely on the counsel of those promoting these credits. Promoters marketing this credit have a fixed interest in making money and do not usually have the best interest of their clients at heart.
Don’t apply unless you are qualified to claim the credit: confirm your eligibility on IRS.gov and work with a trusted tax expert (Not an ERC promoter) who can provide critical professional advice on the ERC.
Ask for details: Ask for a detailed worksheet explaining your ERC eligibility and the computation used to determine your ERC amount.
The most important thing to note about the ERC is to work with a trusted tax advisor to avoid the possible fines and penalties as well as a large upfront fee that could set you back thousands of dollars. At Tax Goddess, we dig into details to review your tax returns and confirm your eligibility for the ERC. if you have any questions about claiming your ERC, reach out to the Tax Goddess Team to help you figure out the specific details of claiming your ERC