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The airwaves and internet are inundated these days with advertisements claiming that businesses are missing out on the lucrative Employee Retention Tax Credit (ERTC). While some employers do indeed remain eligible if they meet certain criteria, the IRS continues to caution businesses about third-party scams related to the\u00a0credit.<\/p>\n
While there\u2019s nothing wrong with claiming credits you\u2019re entitled to, those that claim the ERTC improperly could find themselves in hot water with the IRS and face cash-flow problems as a result. Here\u2019s what you need to know to reduce your\u00a0risks.<\/p>\n
ERTC in a nutshell<\/strong><\/p>\n The ERTC is a refundable tax credit intended for businesses that 1)\u00a0continued paying employees while they were shut down due to the pandemic in 2020 and 2021, or 2)\u00a0suffered significant declines in gross receipts from March\u00a013, 2020, to December\u00a031, 2021. Eligible employers could receive credits worth up to $26,000 per retained employee. The credit may still be available on an amended tax\u00a0return.<\/p>\n The requirements are strict, though. Specifically, you must\u00a0have:<\/p>\n In addition, a business can\u2019t claim the ERTC on wages that it reported as payroll costs when it applied for Paycheck Protection Program (PPP) loan forgiveness or it used to claim certain other tax credits. Also, a business must reduce the wage deductions claimed on its federal income tax return by the amount of\u00a0credits.<\/p>\n Prevalence of scams<\/strong><\/p>\n The potentially high value of the ERTC, combined with the fact that employers can file claims for it on amended returns until April 15, 2025, has led to a cottage industry of fraudulent promoters offering to help businesses claim the credit. These fraudsters wield inaccurate information and inflated promises to generate business from innocent clients. In return, they reap excessive upfront fees in the thousands of dollars or commissions as high as 25% of the refund received.<\/p>\n The IRS has called the amount of misleading marketing around the credit \u201cstaggering.\u201d For example, in recent guidance, the tax agency explained that, contrary to advice given by some promoters, supply chain disruptions generally don\u2019t qualify an employer for the credit unless the disruptions were due to a government order. It\u2019s not enough that an employer suspended operations because of disruptions \u2014 the credit applies only if the employer had to suspend operations because a government order caused the supplier to suspend its<\/em> operations.<\/p>\n ERTC fraud has grown so serious that the IRS has included it in its annual \u201cDirty Dozen\u201d list of the worst tax scams in the country. In Utah, for example, the U.S. Department of Justice has charged two promoters, who did business as \u201c1099\u00a0Tax Pros,\u201d with participating in a fraudulent tax scheme by preparing and submitting more than 1,000 forms to the IRS. They claimed more than $11\u00a0million in false ERTCs and COVID-related sick and family leave wage credits for their\u00a0clients.<\/p>\n Fraudsters have been able to monopolize on the general confusion and uncertainty around the ERTC. A recent congressional hearing found that some of the problems can be traced back to the entirely paper application process created for the credit. This has contributed to a backlog of nearly 500,000 unprocessed claims, out of more than 2.5\u00a0million claims that have been submitted.<\/p>\n Although it\u2019s unclear how much progress the IRS has made on the backlog, the agency has announced that it has entered a new phase of intensified scrutiny of ERTC claims. It\u2019s stepping up its compliance work and establishing additional procedures to deal with fraud in\u00a0the program. The IRS already has increased its audit and criminal investigation work on ERTC claims, focusing on both the promoters and<\/em> the businesses filing dubious\u00a0claims.<\/p>\n If you fell into the trap and are among those businesses, you could end up on the hook for repayment of the credit, along with penalties and interest, on top of the fees you paid the promoter. That could make a substantial dent in your cash\u00a0flow.<\/p>\n Even if you\u2019re eligible for the credit, you could run into trouble if you failed to reduce your wage deductions accordingly or claimed it on wages that you also used to claim other credits. As the IRS has noted, promoters may leave out key details, unleashing a \u201cdomino effect of tax problems\u201d for unsuspecting businesses.<\/p>\n Moreover, providing your business and tax documents to an unscrupulous promoter could put you at risk of identity\u00a0theft.<\/p>\n Red flags to watch for<\/strong><\/p>\n The IRS has identified several warning signs of illegitimate promoters, including:<\/p>\n The IRS also warns that some ERTC \u201cmills\u201d are sending out fake letters from nonexistent government entities such as the \u201cDepartment of Employee Retention Credit.\u201d The letters are designed to look like official IRS or government correspondence and typically include urgent language pushing immediate\u00a0action.<\/p>\n Protect yourself<\/strong><\/p>\n Taking several simple steps can help you cut your risk of being victimized by scammers. First, if you think you may qualify for the credit, work with a trusted professional \u2014 one who isn\u2019t proactively soliciting ERTC work. Those who are aggressively marketing the credit (and in some cases, only the credit) are more interested in making money themselves and are unlikely to prioritize or protect your best interests.<\/p>\n You also should request a detailed worksheet that explains how you\u2019re eligible for the credit. The worksheet should \u201cshow the math\u201d for the credit amount as well.<\/p>\n If you\u2019re claiming you suspended business due to a government order, ensure that you have legitimate documentation of the order. Don\u2019t accept a generic document about a government order from a third party. Rather, you should acquire a copy of the actual government order and review it to confirm that it applies to your business.<\/p>\n Proceed with caution<\/strong><\/p>\n No taxpayer ever wants to leave money on the IRS\u2019s table, but skepticism is warranted whenever something seems too good to be true. If you believe your business might be eligible for the ERTC, we can help you verify eligibility, compute your credit and file your refund claim. We can also help you determine how to proceed if you claimed the ERTC improperly.<\/p>\n \u00a9 2023<\/em> \u00a0<\/p>\n <\/body> The airwaves and internet are inundated these days with advertisements claiming that businesses are missing out on the lucrative Employee Retention Tax Credit (ERTC). While some employers do indeed remain eligible if they meet certain criteria, the IRS continues to caution businesses about third-party scams related to the\u00a0credit. While there\u2019s nothing wrong with claiming credits […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,59,10],"tags":[8,11,12],"class_list":["post-16927","post","type-post","status-publish","format-standard","hentry","category-articles","category-etra","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16927","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=16927"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16927\/revisions"}],"predecessor-version":[{"id":16928,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16927\/revisions\/16928"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=16927"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=16927"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=16927"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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