Increase In Scammers & Delays In Refunds


By Brock Blake, Forbes Contributor

Just in time for tax season, the IRS recently released its “Dirty Dozen” list. The agency says this list represents the worst of the worst tax scams, and it issues it as a way to warn and urge businesses and consumers to be vigilant in not falling victim to one of these scams. In theory, this is a great way to protect both businesses and consumers. However, this year, many legitimate organizations are voicing concerns that the list may have caused more harm than good in the Employee Retention Tax Credit (ERTC or ERC) industry. As possible evidence of this, the volume of bad actors and illegitimate ERC applications has spiked to an all-time high since the release of the list.

The ERC was part of the CARES Act and was focused on providing eligible employers with a tax credit for retaining employees during the height of the pandemic (up to $26,000 per employee). As the CEO of a company that, among other services and products, helps small businesses (SMBs) receive the ERC, I’ve seen firsthand the fly-by-night applicants that come out of the woodwork, believing they can make a fast buck, and then disappear just as quickly as they appeared. I’ve also seen organizations (similar to those we saw during the Paycheck Protection Program) who lack compliance, controls and process and, as a result, overpromise the amount of refunds an applicant can qualify for. So, I was actually glad to see these “mills,” bad actors, and scams called out by the IRS.

Calling Out a Scam… Creates More Scammers?

However, in the weeks that have followed the Dirty Dozen announcement, we’ve seen a dramatic increase in scammers and unqualified applicants for the ERC, and it’s not just us. Nearly every significant, credible ERC servicing company has had to temporarily reduce marketing spend on critical channels like Google and Bing in order to dig through fraudulent leads and ensure the qualified, eligible SMBs get what they need. Sadly, fraud like this ultimately hurts the very mom-and-pop shops and other small businesses the credit was created to help.

Legitimate small businesses should be very careful with who they choose to work with to apply for the ERC credit, if they are eligible. As a business owner, you must ensure that you are calculating the credit appropriately or risk being audited in the future and potentially receiving fines or other penalties (in addition to paying the credit back).

Delays in Refunds

Unfortunately, it’s not just the scammers putting a damper on the ERC. In March, 15 members of Congress from the Ways and Means Committee sent a joint letter to the Commissioner of the IRS asking for an investigation into “numerous inquiries and constituent complaints about the lengthy delays in processing the ERTC, and the lack of information being provided to those waiting on resolution of their claims.” Legitimate small businesses that apply for the credit are finding that it’s taking nearly 12 months (or longer) before they receive the credit. For enterprise and larger companies, this may not be an issue, but for small and medium-sized businesses, this credit could mean life or death for their organization.

The IRS has recently responded to the letter by committing to double the number of applications processed each week. Will that be enough to handle the more than 900,000 applications that are waiting in the backlog to be processed?

My concern is that the bad actors may overshadow the legitimate businesses seeking to help others to obtain the ERC, and the delays in payment may further hurt the businesses along Main Street that fought so hard to survive during the pandemic. We’re now on a mission to help educate business owners, regulators and the community in general.

Not Losing Sight of the Opportunity

Lendio exists to help SMBs not just to survive, but to thrive, and we have seen how receiving the ERC can help fuel companies into their next phase or stage. The ERC is a great option for SMBs that maintained employees during the pandemic, meeting the specific terms of the program. In order to quality, a business had to have had one of the following:

  • An adequate decrease in revenue in 2020 or 2021, as compared to 2019:
  • 50% decrease for 2020 quarters
  • 20% decrease for 2021 quarters
  • OR, a full or partial shutdown caused by a government order that has a 10% impact on the business’ operational size, or ability to operate, OR
  • OR, an operational start date after Feb. 15, 2020 coupled with an annual revenue run rate less than $1 million

If one of the above has occurred in your business, you should talk to a qualified professional to determine if you’re eligible for a tax credit. The amount of the tax credit is determined by the total payroll dollars paid to W-2 employees during qualifying quarters, or the duration of a full or partial shutdown caused by a government mandate related to COVID-19. Find a tax professional who’s well-versed in ERC and can help you navigate the complexities of the credit—this is essential to helping you file correctly and receive the full amount you qualify for.



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