Scams Revolving Around the Employee Retention Credit

By Better Business Bureau

The Better Business Bureau and the Internal Revenue Servicehave warned about scams revolving around the Employee Retention Credit, a tax credit for businesses that continued paying employees during the COVID-19 shutdowns or had a significant income decline during the eligibility period. 
Now, the IRS is ordering a stop to new Employee Retention Credit processing, after a surge in questionable claims, concerns from tax professionals, and aggressive marketing to ineligible applicants. 
The moratorium lasts through at least the end of 2023 on processing new claims for the program to protect small business owners from scams. 

What businesses need to know 

The IRS says payouts for claims already filed will continue during the moratorium period but at a slower pace because of the detailed reviews. Existing ERC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure it is a legitimate claim.
How to avoid tax credit scams 

Ultimately, the IRS will hold you responsible for any inaccurate information on your tax return – not the scammer. BBB has tips to help business owners spot a scam: 

  • Don’t believe marketing materials that guarantee you’ll qualify for a tax credit.Anyone who makes guarantees without knowing anything about your business is likely up to no good.
    Think twice about promises of huge refunds.Scammers use the same tactics for many different cons. Tax credit schemes are no exception. Scammers count on an emotional response to a promise of fast, free cash before reason sets in. If it sounds too good to be true, it probably is.  
  • Don’t pay to get money.While paying a tax professional to prepare your taxes each year is perfectly reasonable, watch out for companies or individuals that charge you fees based on high and optimistic percentages of recovered taxes. Keep in mind that true tax professionals always make conservative estimates.  
  • Get to know the rules about ERC or other tax credits.Always do your research through a reputable source. For example, a quick visit toIRS.govreveals that employers eligible for the ERC must have sustained a full or partial suspension of operations due to a governmental order byan appropriate authority, and they need to have qualified as arecovery startup businessfor the third or fourth quarters of 2021, among other qualifications. A little research can debunk scammers' claims before you get sucked into their schemes.  
  • Be careful with your personally identifiable information.Never give sensitive information to someone you don’t know and trust. If you are dealing with a tax professional for the first time, investigate beforehand to find out if they have a solid business reputation before you hand over any personal details.

For more information 

Find more helpful advice at theBBB Tax Tips & Resources page. You may also want to review theBBB Business Tip: Getting your business ready for tax season

For more business tips to help your small business,check out the BBB business news feedand theBizHQ

Learn how to become aBBB Accredited Business