The Internal Revenue Service (IRS) has issued a renewed warning to businesses and tax-exempt organizations, alerting them to the potential for misleading and fraudulent claims involving the Employee Retention Credit (ERC). The alert comes amid an ongoing onslaught of aggressive broadcast advertising, direct mail solicitations, and online promotions that exaggerate and misrepresent qualifications for the ERC.
The ERC, also known as the Employee Retention Tax Credit or ERTC, is a valid tax credit which many businesses have legitimately applied for during the pandemic. However, the IRS is witnessing an uptick in aggressive promoters making exaggerated claims about this credit. This has led the IRS to increase its audit and criminal investigation activity related to these claims.
IRS Commissioner, Danny Werfel, emphasized the risks associated with such false promotions: “Aggressive promoters present wildly misleading claims about this credit. They can pocket handsome fees while leaving those claiming the credit at risk of having the claims denied or facing scenarios where they need to repay the credit.”
In response to this issue, the IRS has expanded its workforce to handle ERC claims, which often involve the processing of amended tax returns and are thus time-consuming. Despite the increase in invalid claims resulting from these marketing strategies, the IRS is committed to processing valid claims as quickly as possible while safeguarding against fraud.
Businesses and tax-exempt organizations considering applying for this credit are urged to carefully review the official requirements for this limited program before proceeding. The IRS has been proactive in issuing warnings about aggressive ERC scams, even including it on the agency’s list of the ‘Dirty Dozen’ tax scams that people should be wary of.
An improper claim of the ERC can result in the credit needing to be repaid, potentially with penalties and interest. This could leave a business or tax-exempt group in a worse cash position than if they had never claimed the credit.
The IRS has provided several warning signs of aggressive ERC marketing that businesses should watch out for. These include unsolicited calls or advertisements mentioning an “easy application process,” promises of determining ERC eligibility within minutes, large upfront fees to claim the credit, and fees based on a percentage of the refund amount of ERC claimed. Additionally, claims of qualification before a thorough discussion of the group’s tax situation and aggressive suggestions to submit a claim because there’s nothing to lose, are red flags to be cautious of.
The IRS is also warning about promoters who fail to explain critical details such as accurate eligibility requirements or how the credit is computed. One example given is the failure of promoters to explain that only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021.
The IRS is urging businesses and tax-exempt groups to remain vigilant against these misleading marketing tactics and scams. It is of utmost importance to understand the rules and requirements of the ERC thoroughly before applying to avoid falling victim to these fraudulent schemes. In doing so, small business owners can ensure they are claiming any credits they are eligible for without putting their businesses at risk.
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