Do you know the signs of an Employee Retention Credit Scam?

The IRS has identified Employee Retention Credit Scams as the number one worst tax scam on its 2023 Dirty Dozen List. Third parties, commonly known as “ERC Mills” have been aggressively promoting and promising large refunds for businesses with a blatant disregard for the eligibility requirements for the Employee Retention Credit (ERC). The ERC Mills attempt to con ineligible businesses to claim the credit by bombarding these businesses through radio and tv advertisements, phone calls, emails and text messages claiming that the business is eligible for the ERC and that the process is simple, as all you have to do is answer a few simple questions, like “was your business impacted by Covid-19”?

As a reminder of what the ERC is, it is a fully refundable tax credit that was initiated during the Covid-19 pandemic to entice employers to keep employees on the payroll during a government shutdown or a substantial decline in gross receipts. The eligibility requirements, dollar limitations and applicable time periods changed multiple times during the pandemic, which makes claiming the ERC much more complex than these ERC Mills claim.

Be aware that these ERC Mills will charge a large upfront fee or worse, charge a fee based on a percentage of the ERC refund amount. Not only will they lie about your eligibility and charge you a huge fee, they probably will not be around when the IRS comes knocking on your door to audit your claim. Therefore, not only will you have to return the full credit amount to the IRS plus penalties and interest, you will be out the outrageous fee you paid to the ERC Mill, and on top of that, you will have to pay someone else to handle your audit with the IRS. These ERC Mills also do not disclose all the rules for required actions for businesses after claiming the credit either, leading businesses to make costly mistakes that the IRS will catch and penalize for.

Additionally, sometimes the scammers are trying to get personal identifiable information in exchange for these false promises. These scammers only want to conduct identity theft and have no intention of proceeding with an ERC claim. Remember, if it seems too good to be true or too easy, it probably is!

If you are concerned that you may be an ERC Mill victim or to verify eligibility for the ERC, please contact your knowledgeable HM&M advisor.