June 23, 2023
The Employee Retention Tax Credit is a refundable federal tax credit designed to reward businesses that kept staff employed during the uncertainty of the COVID-19 pandemic. While those chaotic days are far in the past, it is still possible for companies with eligible activities to claim the credit. In fact, it is possible to claim the credit up to three years after the original payroll taxes were due. This means eligible companies can claim the 2020 credit until April 15, 2024, and 2021 until April 15, 2025. While useful it has opened the door to aggressive broadcast, direct mail, and online marketing efforts that are wildly misrepresenting and exaggerating which businesses can qualify. The issue is made worse when these companies charge high fees for the credit, only to have them denied, leaving the company on the hook.
In the past, the IRS has issued warnings about these schemes and the potential consequences to businesses if the claims are denied. Since these companies continue the aggressive marketing tactics, the IRS recently issued another warning which provides additional information. Included are details on signs of aggressive marketing, details on how promoters lure victims, and steps on how taxpayers can protect themselves. To help clients, prospects and others, Wilson Lewis has provided a summary of the key details below.
It’s no surprise that the promise of a large refundable tax credit would immediately attract the interest of business owners and managers. However, the IRS has provided several tips to help identify these aggressive and often unethical marketing campaigns. This includes unsolicited advertisements mentioning an easy application process, promises of determining eligibility within minutes, large upfront fees to claim the credit and fees based on a percentage of the refund. In addition, it is important to be wary of those claiming a business is eligible before asking any questions and encouragement to submit the claim because there is nothing to lose.
The truth is these latter claims are false. The ERC is a complicated credit that requires a careful review of operational details before eligibility can be determined. In addition, for those who submit a claim without being properly qualified it is possible the credit may have to be repaid along with substantial interest and penalties. The IRS has also warned these companies may also be at risk of someone using the credit as a play to steal the taxpayer’s identity or tax a portion of the improperly claimed credit.
The IRS also provided information on the various tactics used to lure companies into applying for the credit including:
The easiest way is to only work with a trusted tax advisor. Many of these ERTC mills have only been in business a few short years and exclusively focus on the ERTC. In some cases, there are not even Certified Public Accountants (CPAs) working in the business. Unfortunately, these companies have a vested interest in making money and are not concerned about the taxpayer. Finally, it is a good idea to become familiar with the eligibility criteria of the credit before making any decisions to apply.
The ERC can be a lucrative tax savings opportunity, but only for those who qualify. The amount of misinformation in advertising has increased and businesses need to beware. For this reason, it is essential to work with a trusted and qualified tax professional who can evaluate eligibility and guide you through the process. If you have questions about the Employee Retention Tax Credit, or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.