For over 20 years, the IRS has published the Dirty Dozen annual list, which aims to protect susceptible taxpayers by raising awareness about the various schemes used by fraudsters and con artists. It represents the worst tax scams and potentially abusive tax avoidance arrangements taxpayers may encounter. Many of these schemes peak during tax season as businesses and individuals prepare their returns. These elaborate ploys put taxpayers at financial risk and increase the chances of becoming victims of identity theft.
Aggressive Marketing ERC Schemes
Employee Retention Credits (ERC) scams kick off the IRS annual Dirty Dozen campaign due to the blatant attempts by promoters to con ineligible people to claim the credit. The IRS calls out aggressive marketing schemes from promoters and con artists, who are blasting radio and internet ads touting these ERC refunds. Businesses have also reported personal contacts, such as email and phone calls, touting the ERC. These manipulative tactics often relay misleading, inaccurate information related to eligibility for and computation of the credit.
While ERC has provided a financial lifeline to millions of businesses, the misrepresentation lends an air of legitimacy to abusive claims for refund that the IRS finds concerning. Therefore, businesses should be cautious of advertised scams promising tax savings that are too good to be true. Listen to the advice of your trusted tax professional because improperly claiming this credit could result in potential penalties and interest.
The ERC is a refundable tax for businesses that continued paying employees during the COVID-19 pandemic or had a substantial loss in gross receipts during the eligibility periods. There are specific guidelines around these pandemic-era credits, and not every business qualifies. And remember, you are responsible for the accuracy of the information on your tax return.
Eligible businesses are those employers with qualified wages paid between Mar. 13, 2020, and Dec. 31, 2021. Additionally, you must have:
Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings because of COVID-19 during 2020 or the first three quarters of 2021.
Qualified as a recovery startup business for the third or fourth quarters of 2021.
If your business does not meet the criteria, it should not apply for the credit. Additionally, eligible employers cannot claim it for any quarter in which wages were reported as payroll costs to obtain Payroll Protection Plan (PPP) loan forgiveness.
Even if you choose not to pursue the claim, entertaining these scammers can result in other troublesome issues. Some of these marketing schemes exist solely to gather personal information. The promoters and con artists then use this information to conduct identity theft.
Penalties and Reporting
The IRS is stepping up enforcement action involving these ERC claims. On the civil side, it has trained auditors examining these types of claims, and the IRS Criminal Investigation Division is looking for promoters of fraudulent claims for credits.
As part of the "Dirty Dozen" awareness effort, the IRS encourages businesses to report tax related, illegal activities relating to ERC claims and other abusive tax schemes. The IRS urges employers to report fraud and IRS-related phishing attempts to the IRS via email at email@example.com and to the Treasury Inspector General for Tax Administration online or by phone at 1.800.366.4484. To report an abusive tax scheme or a tax return preparer, file Form 14242, Report Suspected Abusive Tax Promotions or Preparers.
Here to Help
If you have questions or concerns about your unique situation or need strategic financial advice about ERC, we are here to help. We build value added relationships with each client to understand their business structure to providesolid solutions, and our approach offers clients direct access to the firm's decision-makers. Contact us to let us knowhow we can best support you.