6 Shady Practices of Employee Retention Credit Service Providers

Even with the help of highly-skilled tax experts, navigating the intricacies of claiming employee retention credits (ERC) is no easy task. It’s an imperfect invention born of necessity in a global crisis. 

The bureaucratic minutiae required to claim a credit created information asymmetry between business owners and those marketing themselves as ERC preparers or promoters. It wasn’t long before the road to successfully claiming ERC was lined with grifters, con men, and bad actors.

Earning up to $7,000 per quarter in tax credits for each employee is too good to pass up. But it wasn’t always $7,000. This table lays out how the maximum credit per employee has evolved from the start of the program.

It also lays out why you need the number nerds by your over your shoulder on this.

Lift HCM is an independent payroll provider that has secured over $10 million in employee retention credits to date. We’ll walk you through six red flags you’ll find in predatory ERC promoters in the hopes of giving you the confidence you need to claim your credits safely.

Business Structure and Intent

It’s not hard to spot shady “cash grab” operations in this market. You should be aiming to file your ERC through a provider who established a base of clients as a tax expert before pivoting or expanding their services to include or focus on ERC. Claiming employee retention tax credits is not the work of a serial entrepreneur. You don’t want a CEO who graduated to ERC from a multilevel marketing scheme. That’s why it’s important to look into their leadership.

You also want to watch out for companies whose sole service offering is retention credits as it’s a calling card of cash grabs. If, for one reason or another, the operation feels opportunistic, chances are it’s not your opportunity they’re keeping front of mind.

“Aggressive” Marketing Practices

To say employee retention credit services are marketed “aggressively” doesn’t do it justice. Ads have made their way to every medium; from radio spots, television commercials, online ads, text message campaigns, phone calls; everything short of skywriting. More often than not, they’re also the type of ads that make you like you’re directly interfacing with a con artist. The IRS even reported cases of people receiving very official-looking letters from the "Department of Employee Retention Credit" (which does not exist).

You’ll get all sorts of marketing materials touting a fast and easy application process, be on your guard. No matter what they do to streamline your submission, calculating ERC ain’t fast and it certainly isn’t easy.

Trust your gut on this. If a business that claims to offer ERC preparation services is pressuring you to take immediate action, the only action you should take is blocking their number.

Dismissing Doubts and Expert Opinions

One common trend amongst the IRS’s list of red flags was the tendency of predatory providers rushing prospective clients to a decision while being dismissive of their doubts and second opinions. Businesses are being told to disregard the advice of their tax partners (which is the business equivalent of “yeah, but what does your doctor really know?”).

Businesses are also being told to claim the ERC because they “have nothing to lose” in doing so. To this, we say...

Bears. Beets. Battlestar Galactica.

Black bear, indeed. Here is exactly what you stand to lose:

• Improperly claimed tax credits must be paid back, often with sizable penalties and interest.
• Businesses that have been rushed into action have faced contingency fees as high as 25%.
• The IRS has referred thousands of cases to their Criminal Investigation division for audit which, in some cases, has led to federal sentencing (i.e. losing your freedom).
• You could be acting as an unwitting accomplice to a greater identity theft scheme.

ERC Eligibility Claims

To say an entity soliciting your business by telling you that you qualify for employee retention credits without spending a single second combing through the necessary documentation is making an “educated guess” is giving them too much credit. Their actions are, at best, severely naive and highly unprofessional. At worst, their claims are illegal.

Any company claiming they can determine whether or not you’re eligible for employee retention credits within minutes is lying to you. It can be relatively painless if your preparer has access to the necessary information, but it still takes time to review your receipts, PPP loan filings, and payroll.

Omitting or Obfuscating Information

Third-party promoters can be selectively vague or inaccurate in their explanations of ERC eligibility and calculation.

Specifically, they fail to mention the myriad limitations placed on ERC eligibility. A failure to communicate these limitations has resulted in many businesses submitting improper claims (which often sees them slapped with hefty fines and penalties).

The catty #kweens at the IRS spilled the tea on a number of specific examples in their list of red flags.

Because, if anyone is going to bring the receipts...

Lack of Transparency and Ownership

The company assisting you with claiming retention credits needs to be willing to sign the return with all relevant identification numbers included. If their business is above board, there’s no legitimate reason they’d want to obfuscate this information.

One thing that the IRS emphasized multiple times throughout their guide is the importance of asking to see detailed documentation surrounding their calculation of ERC.

Takeaways for CPAs

The IRS issued a moratorium on September 14, 2023 which freezes new claims through the end of the year. If you’re interested in claiming employee retention credits, now is the perfect time to meet with the real experts to prepare your claim when submissions open back up. Chuck Wing is a payroll service manager at Lift HCM. Reach out to Chuck today to get the ball rolling on claiming employee retention credits the right way!