Too Good to be True? Be Cautious of Improper ERC Providers
You may have seen the billboards or have received emails stating or guaranteeing that you qualify for a credit of $26,000 per employee over the last several years. These marketing ploys refer to the Employee Retention Credit (ERC) benefits. As appealing as these statements are, experienced tax professionals have concerns regarding this simplification of the ERC and the prevalence of many inexperienced tax providers offering ERC services.
Overview of the ERC
Among the many relief programs during the height of the COVID-19 pandemic, the ERC program was one of the most powerful and successful. The program’s goal was to incentivize and reward businesses that had their operations significantly affected by the pandemic or government shutdowns and retained and continued to pay employees. For most businesses, this credit applies to wages paid between March 2020 and September 2021.
To be eligible for the ERC, employers must have the following:
- For quarters in 2020, it experienced a 50% decline in revenue compared to the same quarter in 2019.
- The first three quarters of 2021 experienced a 20% decline in revenue compared to the same quarter in 2020.
- Sustained a full or partial suspension of operations during a quarter due to government orders.
- Qualifies as a recovery startup business that began operations after February 15, 2020 and fulfills certain requirements.
If eligibility is established, ERC claims can be filed on an amended employment tax return for the quarters that qualify based on the wages paid during that quarter. Amended payroll tax returns can be filed for three years from the original filing or two years from the date the tax was paid, whichever is later.
Improper ERC Claims
Recently the IRS has also warned employers to be cautious of third-party providers advising incorrect or improper positions related to the ERC. The ERC providers in question range from providers with poor knowledge of the ERC’s intricacies to those providers knowingly committing fraud. Before the ERC program, many of these providers had no experience with tax-related issues. They may not stand behind their work or handle credit processing issues. The taxpayer is responsible for the positions taken and the numbers on any return filed with the IRS (employment or income). If a taxpayer work with an inexperienced provider, it creates significant exposure to improper credits claimed and can result in significant penalties and interest in addition to repayment of the credit.
Look for these red flags to spot ERC provider scams:
- Fees are contingent upon the amount of credit received.
- Statements that you qualify for the ERC without evaluating your facts and circumstances.
- Providing projected refund figures without reviewing payroll information.
- Excessively optimistic estimates of projected credits.
- No discussion of the need to decrease your wages deduction on your business return by the amount of ERC taken.
- Poor or little established history of the provider.
- Unrealistic timelines for the IRS to process and for you to receive the ERC.
These items individually are not an indication of bad actors but should cause you to ask additional questions and exercise extra caution.
The ERC Program has been one of the more robust measures enacted during the COVID-19 pandemic. It will likely be a significant area of focus for IRS scrutiny. There is still time to file amended payroll tax returns and claim these credits if you qualify. If you still need to file for these credits, contact your BGM professional to evaluate if you qualify or complete the Contact Us form. If you are concerned about the accuracy of a claim you already filed, reach out to your BGM professional to assess your claim to see if changes should be made.