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.
The bureaucratic intricacies required to secure these credits have created an information imbalance between business owners and those touting themselves as ERC specialists. Consequently, the path to successfully claiming ERC has become littered with fraudsters, con artists, and unscrupulous operators.
Securing up to $7,000 per quarter in tax credits for each employee is an enticing proposition. However, it wasn't always this lucrative. Here’s a breakdown of how the maximum credit per employee has evolved since the program's inception:
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CARES Act of March 2020 |
Relief Act of 2021 |
American Rescue Plan Act of 2021 |
Infrastructure Investment and Jobs Act (IIJA) |
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Maximum Credit Per Employee |
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This table underscores the necessity of having knowledgeable professionals by your side.
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, hoping to give you the confidence you need to claim your credits safely.
Business Structure and Intent
Identifying dubious "cash grab" operations is essential. Choose a provider with an established client base as a tax expert before incorporating ERC services. Claiming these credits is not the domain of serial entrepreneurs. Avoid CEOs who have transitioned from multilevel marketing schemes to ERC claims. Investigate their leadership and ensure their primary focus is not solely on retention credits, which often signals a cash-grab mentality.
Aggressive Marketing Practices
The marketing of ERC services has been exceedingly aggressive, spanning radio, TV, online ads, text messages, and phone calls. Some ads even give the impression of being directly from con artists. The IRS has reported cases where people received official-looking letters from the fictitious Department of Employee Retention Credit.
Be wary of marketing materials promising a fast and easy application process. Calculating ERC is neither quick nor simple. Trust your instincts. If a business pressures you to act immediately, it's best to avoid them.
Dismissing Doubts and Expert Opinions
Predatory providers often rush clients into decisions, dismissing their doubts and second opinions. They might urge you to ignore the advice of your tax partners. They may also claim you have nothing to lose by filing for ERC, which is misleading.
Here's what you stand to lose:
- Improperly claimed tax credits must be repaid, often with hefty penalties and interest.
- Rushed decisions can lead to contingency fees as high as 25%.
- The IRS has referred thousands of cases for criminal investigation, leading to potential federal sentencing.
- You might unknowingly aid identity theft schemes.
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.
Report Suspected AbuseIf you suspect you’ve been targeted by an abusive ERC promoter, mail or fax a completed copy of Form 14242 and any relevant evidentiary materials to the Office of Promoter Investigations. Internal Revenue Service Lead Development Center Stop MS5040 |
Omitting or Obscuring 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).
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 obscure this information.
The IRS repeatedly emphasized throughout its guide the importance of asking to see detailed documentation surrounding its calculation of ERC.
Takeaways
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 real experts to prepare your claim when submissions open back up.
