The IRS on Tuesday warned taxpayers to be careful about third parties who promise too-good-to-true tax savings in radio and online advertisements pushing ineligible businesses to file for the Employee Retention Credit (ERC).
These scammers charge large upfront fees or a fee that is contingent on the amount of the refund, the IRS said. And the promoters may not inform taxpayers that wage deductions claimed on the business’ federal income tax return must be reduced by the amount of the credit.
“While this is a legitimate credit that has provided a financial lifeline to millions of businesses, there continue to be promoters who aggressively mislead people and businesses into thinking they can claim these credits,” said acting IRS Commissioner Doug O’Donnell.
Some scams have slogans like “What Your Accountant Won’t Tell You,” and promise tens of thousands of dollars from the IRS without even looking at the targeted business’s books. The IRS said taxpayers are always responsible for the information reported on their tax returns and that improperly claiming the ERC could result in having to repay the IRS for the credit, plus penalties and interest.
“Anyone who is considering claiming this credit needs to carefully review the guidelines,” O’Donnell said. “If the tax professional they’re using raises questions about the accuracy of the Employee Retention Credit claim, people should listen to their advice. The IRS is actively auditing and conducting criminal investigations related to these false claims. People need to think twice before claiming this.”
The IRS has been warning about this scheme since last fall, but there continue to be attempts to claim the ERC during the 2023 tax filing season. Tax professionals say they continue to be pressured by people wanting to claim credits improperly. The IRS Office of Professional Responsibility is working on additional guidance for the tax professional community that will be available soon.
People and businesses can avoid this scheme by not filing improper claims in the first place, the IRS said. If a business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction.
What is the ERC?
The ERC is a refundable tax credit designed for businesses who continued paying employees while shut down due to the COVID-19 pandemic or who had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021. Eligible taxpayers can claim the ERC on an original or amended employment tax return for a period within those dates.
To be eligible for the ERC, employers must have:
- sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings due to COVID-19 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, or
- qualified as a recovery startup business for the third or fourth quarters of 2021.
Only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021. In addition, eligible employers cannot claim the ERC for any quarter on wages that were reported as payroll costs in obtaining PPP loan forgiveness or that were used to claim certain other tax credits.
Employers should also report instances of fraud and IRS-related phishing attempts to the IRS at phishing@irs.gov.
Learn more about the Employee Retention Credit at IRS.gov.
