The IRS recently issued multiple warnings about scams related to the Employee Retention Credit (ERC). Congress created the ERC in 2020 to help businesses that kept employees despite reduced revenues during the pandemic. In most cases, to qualify for the credit, a business must have had significant, pandemic-related revenue decreases in 2020 or the first three quarters of 2021. Some ventures classified by the IRS as “recovery startup businesses” may also claim the credit if they paid employees during the third and/or fourth quarter of 2021.
In radio and internet ads, scammers are making exaggerated claims about the size of the ERC, and often misleading business owners about eligibility rules for the credit. Some scammers offer to file an ERC application on the business owner’s behalf, for a fee. However, with IRS staff carefully reviewing all ERC claims, bogus applications will typically be identified and rejected. Taxpayers who file inaccurate returns or improperly claim tax benefits may face IRS as well as legal penalties.
Some other promoters of fake ERC opportunities are engaged in identity theft. These scammers use a bogus application form to harvest a taxpayer’s personal identification and tax information, then disappear. The IRS urges business taxpayers to be suspicious of all ads making “too good to be true” claims about the ERC. The safest way to determine whether your business qualified for the ERC in 2020 or 2021, and may still claim it, is to work with a trusted tax professional.