Common Employee Retention Credit Scams and How to Avoid Them
Employee Retention Credit (ERC) issued by the IRS helps businesses retain their staff during a financial crisis.
However, along with the benefits come the scams that target unsuspecting business owners. Unfortunately, even after the IRS listed ERC scams as number one on its Dirty Dozen List, these scams have increased, frauding most employers and leaving them without recourse.
Common ERC Scams
Fighting scammers is not new to businesses in every sector. Fraudsters are more sophisticated than ever and exploit almost everyone to make quick cash. The IRC is a lucrative opportunity where they con people in the following ways:
Unqualified ERC Advisors
After ERC was passed into law, most tax experts realized the need to guide business owners to navigate the complex tax laws. This is where many perpetrators saw an opportunity to make quick money. They've adopted slick marketing tactics and easy application processes to lure employers.
Identity Theft
Identity theft has been a long-standing issue, not only to ERC but in the general internet fraud. Scammers pose as tax advisors to collect confidential information about an employer, the business, its employees, and financial holdings. They then use this information to make believable ERC appeals.
False or Misleading Fee Structure
ERC scammers guise as the taxpayer's advocates to make inaccurate eligibility assurances. They willingly assume the recommended credit computation rules to increase their fees. While it's not unusual for a fee to be contingent on the total ERC refund, scammers ask for unreasonably large and non-refundable upfront amounts.
Inflated Salaries and Wages
In the same vein, scammers can also fabricate your employee's wages for a bigger business tax credit. By doing so, you highly risk exaggerating payroll amounts to the IRS where you'll have to repay the credit with penalties and interests.
Tips to Avoid ERC Scams
Consider Well-Established Companies
A fraudulent startup business, by its very nature, has no intention of being around for a long time. The reason is, that it focuses narrowly on profiting off unsuspecting business owners for the short-term. While many new ethical businesses help with the IRS, many conduct ERC tax credit frauds. Opt for well-trained and seasoned tax experts with a track record of legal IRS compliance.
Avoid Companies That Guarantee Eligibility
Promising free money, credit, or refund, without proper knowledge of your business is a red flag for bad actors. Your company must meet a certain threshold for it to qualify for an ERC credit.
You should take a pass on any outfit posing as an ERC promoter with promises to do the paper legwork, but unable to join the dots in gross revenue, paid wages, and ERC.
Insist on Personal Communication
It's easy for fraudsters to hide incompetence and their ill motives. As such, scammers will avoid any phone or live conversations by limiting them to email, text, or chatbots. ERC qualifications and credit calculations are very complex and demand a live interaction. If the promoter cannot tie to a personal exchange, you should not proceed further with them.
Endnote
Knowing the telltale signs of promoters luring victims is an important step to protect your business. If you ignore these red flags, the onus will be on you to refund the credit with probable interest and penalties. To avoid this, consider the above tips to know what your credit is and whether you qualify. Work with a trusted tax professional for legitimate advice.
