Employee Retention Credit (ERC) scams have risen since implementing the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). These scams are often orchestrated by individuals or companies posing as genuine ERC consultants, posing a significant risk to businesses aiming for tax relief. Understanding these tax scam strategies is crucial for businesses to avoid such fraudulent activities, and stay compliant with this IRS tax credit program.
“The IRS has published several important guidelines for businesses regarding the Employee Retention Credit. They have shared crucial insights into how these ERC scams function and offer effective measures to ensure your business remains secure and protected,” said Marty Stewart, Chief Strategy Officer (CSO) with Disaster Loan Advisors (DLA).
Business Owner Guidance: Key Takeaways for the Employee Retention Tax Credit
– Employee Retention Credit (ERC) scams have increased since the CARES Act was enacted, posing a significant threat to businesses seeking tax credits.
– Business owners should be aware of red flags such as illegitimate ERC consultants inflating their eligibility, submitting erroneous eligibility claims, identity theft, filing false claims, exaggerating salaries and wages, seeking credits for disqualified employees, and being charged an ERC contingency fee.
– To protect their business from ERC scams, owners should work with established professionals, insist on personal communication, understand ERC requirements and eligibility criteria, inquire about defense against IRS audits, and establish a realistic time frame for receiving the credit.
– Owners can ensure financial stability and long-term success by staying informed about these scams and taking proactive measures to safeguard their businesses against fraudsters.
– Staying 100% compliant with IRS rules and regulations is a must with this valuable ERC credit.
Understanding Employee Retention Credit (ERC) Scams
Employee Retention Credit (ERC) scams involve various fraudulent activities aimed at exploiting businesses seeking to claim the ERC tax credit, such as illegitimate ERC consultants, submitting erroneous eligibility claims, identity theft, filing false claims, presenting fake employee data, exaggerating salaries and wages, and seeking credits for disqualified employees.
Illegitimate ERC Consultants, ERC Mills, and Other ERC Companies
Illegitimate Employee Retention Credit (ERC) consultants pose a growing threat to business owners. These scam artists misrepresent themselves, promising to unlock lucrative tax credits under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Often operating under the guise of seasoned tax professionals, they’re adept at exploiting uncertainties surrounding ERC eligibility and claim processes. Their modus operandi typically involves charging exorbitant fees to secure these elusive credits or engaging in fraud, such as creating false documents or using fabricated employee information.
Be especially wary if promises seem too good to be true or lack basis on your specific business structure and circumstances, both hallmark indicators of a potential scammer at work.
Submitting Erroneous Eligibility ERC Tax Credit Claims
Submitting erroneous eligibility claims is a common tactic employed by ERC scammers. These fraudsters may misrepresent your business’s qualifications for the Employee Retention Credit to inflate potential refunds.
However, such actions can attract scrutiny from the IRS and lead to severe penalties for tax fraud, even if you were not aware of their deceitful practices.
Understanding the specifics of ERTC qualification is crucial in combating these scams. Be wary of any service that makes premature determinations about your company’s eligibility without proper consideration of company systems and procedures or structure-these could be signs of forthcoming false claims, leading to unnecessary complications with government officials down the line.
ERC Identity Theft
Identity theft is a common and nefarious method used in Employee Retention Credit (ERC) scams. Unscrupulous individuals masquerading as ERC consultants or tax professionals may connive to extract sensitive company information.
This can include anything from your Social Security number to bank account details. With this stolen data, fraudsters effectively become you – filing false claims for the tax credits under your name and redirecting these ill-gotten funds to their accounts.
Business owners must remain alert against phishing scams or any instance where an unverified source requests financial or personal information – these could be precursors to extensive identity theft damaging your business finances and reputation.
Filing False ERC Claims
Scammers targeting businesses through Employee Retention Credit (ERC) scams often file false claims. These deceitful individuals or organizations submit fraudulent information to claim credits they are not entitled to, ultimately defrauding the government and potentially causing legal trouble for the targeted business.
Filing false claims is a serious offense and can result in penalties, tax liabilities, and damage to a company’s reputation. It is crucial for business owners to be aware of this scamming technique and take proactive measures to safeguard their businesses against these fraudulent activities.
Exaggerating Eligible ERTC Credit Salaries and Wages
One common type of Employee Retention Tax Credit (ERTC) scam that businesses must be aware of is the exaggeration of salaries and wages. Scammers may try to inflate these numbers to fraudulently claim higher credits from the ERC program.
They do this typically because they are charging a 10% to 30% contingent fee based on the amount of the businesses inflated tax refund. The IRS says it is unlawful to charge a percent or contingent fee based on the amount of a tax refund.
By doing so, they deceive businesses into thinking they can receive larger refunds or credits than they are actually entitled to. This can result in significant financial losses for businesses that unknowingly fall victim to these scams.
Seeking ERC Credits for Disqualified Employees
One common type of employee retention credit (ERC) scam involves scammers seeking credits for disqualified employees. These fraudulent individuals or companies may try to include ineligible employees in their claims, hoping to secure more credits for businesses.
This can lead to serious consequences, including penalties and potential legal issues. Business owners must know this tactic and ensure only eligible employees are included in their ERC claims.
By working with trustworthy professionals and thoroughly understanding the eligibility requirements, you can protect your business from falling victim to scams like these.
Red Flags for Employee Retention Credit Fraud
Business owners must know the IRS red flags that indicate employee retention credit (ERC) fraud. One major warning sign is when marketing materials from ERC consultants lack specific information about the businesses they are targeting.
Legitimate professionals should take the time to understand and tailor their proposals to a business’s unique circumstances.
Another red flag is when an ERC company prematurely determines eligibility without considering important factors such as company structure or payroll outsourcing. This could signal that they are more interested in making money than providing accurate guidance.
Businesses should also be cautious of ERC companies that charge fees based on high percentages of recovered taxes. While it may be tempting to believe promises of big refunds, this could be used by fraudulent companies looking to swindle unsuspecting business owners. Plus, the IRS says to avoid companies charging in this manner.
By staying informed about these red flags and their interactions with ERC consultants, business owners can better protect themselves from falling victim to employee retention credit fraud.
About Disaster Loan Advisors(TM) Employee Retention Credit (ERC) Services
Disaster Loan Advisors(TM) (DLA) is a trusted team of financial tax professionals and Employee Retention Credit (ERC) consulting specialists dedicated to saving businesses from lost sales, lost customers and clients, lost revenue due to financial and economic harm caused by the COVID-19 / Coronavirus disaster, Delta and Omicron variants, and other recession and inflation downturns in the economy.
Having worked with over 1500+ business clients navigate the SBA Economic Injury Disaster Loan (EIDL), Paycheck Protection Program (PPP), and Restaurant Revitalization Fund (RRF) programs, DLA further refined its expertise in the ERC Tax Credit IRS program having assisted more than 700+ companies with their ERC Claims. Assisting ownership groups with multiple business entities, multiple location business owners, and other complex situations that require an expert tax and accounting strategist to be brought in to assess the situation and create the most strategic path forward.
DLA further specializes in another key pandemic-era SBA / IRS program where business owners are leaving a lot of relief fund money on the table. It is the often misunderstood and confusing Employee Retention Tax Credit (ERC) / Employee Retention Tax Credit (ERTC) program whereby company owners and partners can retroactively receive up to $26,000 to $33,000 back for each W-2 employee they had on payroll for the 2020 and 2021 tax filing years. Done correctly, these tax credits or cash refunds can be claimed retroactively for up to 3 years.
It’s encouraged that business owners obtain professional assistance in going through the complex 941-X amended filing process to help your company maximize the full value of the ERC Credit Program, while staying safe and compliant within the complex IRS rules and regulations for claiming the ERC Credits.
DLA doesn’t charge a percentage (%) of your ERC refund like many companies are charging. Instead, DLA works on a reasonable professional flat-fee basis. If you are looking for an ERC company that believes in providing professional ERC services and value for small business owners, in exchange for a fair, reasonable, and ethical fee for the amount of work required, Disaster Loan Advisors is a good fit for you.
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