Beware of Sneaky Employee Retention Credit Schemes: How to Identify Fraud and Protect Yourself
Hey there, taxpayers! Gather ’round and let me tell you a little story about a sneaky scheme called the Employee Retention Credit (ERC). The IRS and tax professionals have been noticing that some cheeky third parties are aggressively promoting the ERC on radio and online. But be careful, folks—some of these offers are just too good to be true.
In a nutshell, these promoters are pushing ineligible people to file a claim for the ERC while charging hefty upfront fees or fees based on the refund amount. But wait, there’s more! They might not even tell you that you have to reduce the wage deductions you claimed on your business’ federal income tax return by the amount of the credit. Sneaky, right?
The IRS has been warning about this since last fall, but some people are still trying to claim the ERC during the 2023 tax filing season. So, let’s talk about who can actually qualify for the ERC and how to report any funny business you come across.
Who Qualifies for the ERC?
The ERC is a refundable tax credit for businesses that kept paying employees during a shutdown due to the pandemic or experienced significant declines in gross receipts. Here’s what you need to be eligible:
- Had a full or partial suspension of operations due to COVID-19-related orders from an appropriate governmental authority during 2020 or the first three quarters of 2021
- Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021
- Qualified as a recovery startup business for the third or fourth quarters of 2021
Keep in mind that you can’t claim the ERC on wages that you reported as payroll costs in obtaining Paycheck Protection Program loan forgiveness or that you used to claim certain other tax credits.
Reporting ERC Fraud
If you come across any illegal tax-related ERC claims and activities, you can report them by submitting a completed Form 14242 to the IRS Lead Development Center in the Office of Promoter Investigations. The fax number and mailing address are on the form.
You should also report instances of fraud and IRS-related phishing attempts to the IRS at email@example.com and the Treasury Inspector General for Tax Administration at 800-366-4484.
Need more guidance on the Employee Retention Credit? Check out these resources:
- Employee Retention Credit – 2020 vs 2021 Comparison Chart
- Form 941-X Instructions (April 2022 Revision)
- Form 941 Instructions (December 2021 Revision)
- Form 941 Instructions (2020 Revisions)
- Form 943, 943-X, 944, 944-X, CT-1, and CT-1-X Instructions
Stay informed, stay vigilant, and remember to watch out for those sneaky schemes!
***Disclaimer: This communication is not intended as tax advice, and no tax accountant -client relationship results**