On September 14, 2023, the Internal Revenue Service announced that it would immediately be putting the Employee Retention Credit (ERC) program on hold.
The ERC was instituted during the pandemic to help businesses continue to pay employees “while their business operations were fully or partially suspended due to a government order or they had a significant decline in gross receipts during the eligibility periods.” It is described by the IRS as “complex” and having “precise requirements,” so that should indicate just how difficult it can be to qualify for this credit.
That increased complexity also led to some companies marketing their ability help get you qualified and filed for the credit…and that led to bad actors in the business world perpetrating fraud on honest small business owners who don’t generally have the time to fill out and understand all the paperwork themselves.
As described on the Better Business Bureau website, you may have seen an online ad or heard one on the radio. The claim is that the government “still owes your business an Employee Retention Credit, which you can claim on your taxes this year. They may ask you to call a number or visit a website for more information. A quick chat with the customer service rep or looking at a website convinces you that qualifying for the ERC is extremely easy.”
It becomes an easy way for con artists to collect sensitive information, like your employer identification number or even personal social security number. Some of them will even charge a service fee “to help you get the credit.”
What they aren’t likely to tell you (because they are, after all, criminals) is that the IRS will hold you personally responsible for claiming a credit you aren’t eligible for, if it you didn’t know. If you actually get a monetary benefit from the credit, you will likely be paying back that money with penalties and interest at some date in the future.
What important details do you need to know? First, this is officially a moratorium on processing new claims. If you already filed a claim for the tax credit or are already receiving the credit, you should not be affected by this action. Again…”Payouts on previously filed ERC claims will continue during the moratorium where appropriate, but taxpayers may be asked to provide additional documentation to verify the legitimacy of their claims.”
If you already have a claim in process, the IRS is extending the processing time to 180 days or more if they feel it needs to be examined in more detail. This is because thousands of ERC claims have been flagged for audit already with hundreds of criminal cases already under investigation.
Kiplinger reported a case where a tax preparer from New Jersey filed more than 1,000 false tax forms for a total of $124 million in credits for the ERC. IRS Commissioner, Danny Werfel, stated that “The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants.”
“For those people being pressured by promoters to apply for the Employee Retention Credit, I urge them to immediately pause and review their situation while we look to add new protections and safeguards to stop bad claims from ever coming in,” Werfel said. “In the meantime, businesses should seek out a trusted tax professional who actually understands the complex ERC rules, not a promoter or marketer hustling to get a hefty contingency fee. Businesses that receive ERC payments improperly face the daunting prospect of paying those back, so we urge the utmost caution. The moratorium will help protect taxpayers by adding a new safety net onto this program to focus on fraudulent claims and scammers taking advantage of honest taxpayers.”
You know the drill…if it arounds too good to be true, it probably is. If you see or hear an aggressive marketing campaign trying to get you to file for “the money you deserve from the government” you should probably start with skepticism. Then call Southern Payroll & Bookkeeping (423-207-2497) and ask us if you qualify for the ERC or some other tax credit. Our team of tax professionals can drill down to find out.