IRS Warns Taxpayer on False ERC Claims: Risks, Red Flags, and Best Practices for Businesses.
Introduction:
The Internal Revenue Service (IRS) plays a crucial role in safeguarding taxpayers and ensuring compliance with tax laws. In recent times, the IRS has issued an alert to businesses and tax-exempt groups regarding misleading employee retention scams. As fraudulent schemes continue to emerge, it is vital for organizations to stay vigilant and take necessary precautions to avoid improperly filing claims. In this blog post, we will explore the warning signs highlighted by the IRS, discuss the potential risks of falling victim to these scams, and provide simple steps businesses can take to protect themselves. Let’s dive in and arm ourselves with the knowledge to combat these deceptive practices.
But before we delve in, here is an overview of ERC and its eligibility criteria to claim ERC.
ERC in a nutshell
ERC- Employee Retention Credits is a refundable tax credit introduced in March 2020, designed to encourage businesses that continue to pay employees during the COVID-19 pandemic. The employees can claim ERC credits if their business is shut down as part of pandemic measures or have experienced a significant decline in their gross receipts between March 31, 2020, to December 31, 2021.
Eligibility Criteria for Businesses to Claim ERC
Eligible Employers For 2020 (Q2, Q3 and Q4)
- Employers’ business operations that are fully or partially suspended due to government orders.
- Experience a significant Decline in gross receipts by up to 50% less compared to the previous quarter.
- The qualified wages should not exceed $10,000 for each employee
Eligible Employers For 2021 (Q1 and Q2)
- Employers’ business operations that are fully or partially suspended due to government orders.
- Experience a significant Decline in gross receipts by up to 80% less compared to the previous quarter.
- The qualified wages should not exceed $10,000 for each employee
Eligible Employers For 2021 (Q3)
- Employers’ business operations that are fully or partially suspended due to government orders.
- Experience a significant Decline in gross receipts by up to 80% less compared to the previous quarter.
- The qualified wages should not exceed $10,000 for each employee
- Business should be qualified as a “Recovery Startup Business.” Businesses are considered “Recovery Startup businesses” when they meet the following criteria.
- Businesses should have established or begun carrying any trade or business after February 15, 2020.
- The business had annual gross receipts of less than $1,000,000 for the 2020 or 2021 tax years.
Eligible Employers For 2021 (Q4)
Businesses that are qualified as “Recovery Startup Businesses.”
IRS Warning about False ERC Claims
The IRS has recently issued an important alert, drawing attention to misleading employee retention scams that are targeting businesses and tax-exempt organizations. The IRS warns organizations to be cautious and watch out for common warning signs associated with these scams.
Red Flags to Claim ERC
For any who are considering claiming the ERC, the IRS warns them to be cautious and carefully review any call or email they receive related to ERC, Especially from unknown third-party sources. With an overwhelming number of third pirates that claim to be true, it may be challenging to identify mills from genuine third parties that offer to help. Here are a few red flags to look out for.
Unexpected solicitations
Be wary of unsolicited calls, emails, or social media messages claiming to offer assistance with filing ERC claims. Scammers often reach out without any prior contact or relationship.
Request for upfront payment
Legitimate service providers do not require upfront payments to assist with filing ERC claims. If someone requests payment before providing any services, it should raise suspicion.
Guaranteed tax credits
Beware of promises or guarantees of substantial tax credits or specific refund amounts. Legitimate claims are based on qualifying criteria and documentation.
Unusual payment methods
Scammers often request payment through unconventional methods like gift cards, wire transfers, or virtual currency. Legitimate service providers typically use standard payment methods.
Personal information requests
Be cautious when asked to provide sensitive information, such as Social Security numbers, bank account details, or other confidential data, to unknown individuals or organizations.
Protecting Against Misleading Scams
To avoid improperly filing claims and becoming victims of misleading employee retention scams, organizations can follow these simple steps:
Seek reputable assistance: Engage with qualified tax professionals, Certified Public Accountants (CPAs), or reputable tax software providers when filing ERC claims. Research their credentials, reviews, and reputation to ensure their legitimacy.
Verify contact information: Independently verify the contact information of service providers by researching their official websites or contacting relevant authorities to confirm their credentials.
Stay informed: Regularly review official IRS publications, alerts, and news updates to stay up-to-date on the latest information and warnings related to tax scams and fraud schemes.
Report suspicious activity: If you come across any suspicious or potentially fraudulent activity, promptly report it to the IRS using the appropriate channels to help protect others from falling victim to scams.
What To Do If You Suspect Tax Fraud?
If you suspect someone is committing or has committed any tax fraud, contact the IRS immediately. You can call IRS toll-free numbers at 1–800–829–1040 (individuals) or 1–800–829–4933 (businesses), or you should mail or fax the completed Form 14242, Report Suspected Abusive Tax Promotions or Preparers to the following mail address.
Mail:
Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Road
Laguna Niguel, California 92677–3405
Fax: 877–477–9135
If you are a victim of identity theft or believe your SSN has been stolen, Visit www.identitytheft.gov to raise a complaint.
Bottom Line
The IRS has been hyper-focused on ERC fraudulent claims, and they have been closely monitoring who peddles the credits to un-eligible employers. IRS has also imposed penalties and repaying of debts for improper or misusing ERC claims.
As taxpayers, it’s essential for you to be cautious of who you choose to share your sensitive information with. Also, be aware of the fake claims and promises that are too good to be true.
Seeking advice from tax professionals and using a reputable IRS-authorized e-file provider can help you stay away from these scams. If you are looking for a reputable e-file provider, TaxBandits is one that you need to get your hands on.
TaxBandits is an IRS-authorized SOC 2 certified efile provider that supports e-filing of 2023 Form 941, 940, and other 94x forms. With a strong commitment to scam-free tax filing, TaxBandits offers a range of robust security features to protect taxpayer information and ensure its utmost security. By utilizing TaxBandits e-file services, you can have peace of mind knowing that your tax filing process is in capable and secure hands.
