Businesses need to think before filing a claim for the Employee Retention Credit

In a further warning to people and businesses, the Internal Revenue Service added widely circulating promoter claims involving Employee Retention Credits as a new entry in the annual Dirty Dozen list of tax scams.

The Employee Retention Credit (ERC) is a refundable tax credit for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020, to December 31, 2021. The ERC is getting the IRS’s attention because of efforts by unethical firms to scam owners who were never eligible for the credit in the first place.

In IR-2023-49, dated March 20, 2023, The IRS released the worst tax scams for 2023. Sadly, the Employee Retention Credit not only made the list, but it also made number one. If you read into IR 2023-49, you may quickly realize that the IRS will look at EVERY ONE of these. So think twice and partner with a CPA firm before applying for one of these credits.

Repeating their earlier warnings, the IRS is now focusing on schemes from firms that have gone so far as to advertise promising refunds from Employee Retention Credits on the radio. Unfortunately, these promotions are based on false information related to eligibility and vastly overstating the amount of the credit.

“The aggressive marketing of these credits is deeply troubling and a major concern for the IRS,” said IRS Commissioner Danny Werfel. “Businesses need to think twice before filing a claim for these credits.

The IRS’s Small Business/Self-Employed division has trained auditors examining these types of claims and is cracking down on ERC claims. However, taxpayers considering filing or having already filed for these claims (which were only valid during the pandemic for a limited group of businesses) need to be conscious that they are ultimately responsible for the accuracy of the information on their tax returns.

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