Spotting ERC Scams: Warning Signs and Red Flags You Need to Know

During the years of the COVID-19 pandemic, the government tried to incentivize businesses to continue paying their employees by providing the Employee Retention Credit (ERC). This was part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The ERC was a  refundable tax credit and offered to eligible businesses that continued paying their employees during the pandemic. The credit had the potential to be substantial; however, not everyone who claimed the ERC met the requirements for eligibility. 

Since that time, the IRS has warned of ERC “scammers” telling San Francisco businesses they qualify for the tax credit when they do not. If you’re not eligible for the credit, getting conned by this could cost you a lot. Here’s what you need to know about the ERC scammers and how to protect your business. 

To start protecting your San Francisco business, you need to be aware of the warning signs of an ERC scam. The first thing to always remember is that the Internal Revenue Service will NEVER reach out to you and encourage you to apply for the ERC. The IRS also does not call to solicit you for your tax purposes. So if you receive an ERC solicitation claiming to be from the IRS, that should be a red flag not to respond. Additionally, anyone using these promoter’s services could be at risk of someone trying to steal their identity or use their information to take a cut of the improperly claimed credit.

According to the IRS, here are additional warning signs for an ERC scam:

  • Unsolicited calls or advertisements mentioning an “easy application process”
  • Statements that the promoter or company can determine ERC eligibility within minutes or before any discussion of the employer’s tax situation, as the ERC is a complex credit that requires careful review before applying
  • Large upfront fees to claim the credit
  • Fees based on a percentage of the refund amount of ERC claimed
  • Promoters telling businesses to claim the ERC because they have nothing to lose. Those who improperly receive the credit could have to repay it – along with substantial interest and penalties
  • Promoters telling businesses to ignore the advice of their trusted tax professional

The IRS warns that these are the tactics these companies use to lure businesses and taxpayers into an ERC scam. 

Aggressive marketing — ERC ads are appearing in several places, including radio, television and online. They also use phone calls and text messaging. 

Direct mailing — Some ERC promoters send letters to taxpayers from non-existent groups like the “Department of Employee Retention Credit.” Scammers will create these letters to look like official IRS correspondence or an official government mailing.

Leaving out key details — These scammers do not accurately explain eligibility requirements or how to calculate the credit. Instead, they may make broad arguments suggesting that “all employers are eligible.” Another big warning sign is that promoters do not tell business owners they cannot claim the ERC on wages they reported as payroll costs if they received Paycheck Protection Program loan forgiveness.

The only way for eligible businesses to claim the credit if they did not when they filed their original employment tax return is by filing adjusted employment tax returns. So in order to protect your business from these scams, do not give your information to any company that contacts you promising to help you obtain the ERC credit. And always work with an experienced tax attorney or professional before you enter into any kind of tax agreement or application. 

Allison Soares is a partner and tax attorney at Vanst Law LLP. It doesn’t matter the issue: audits, collections, appeals, international disclosures, grumpy people— Allison enjoys fixing problems. In addition to her legal work, she has worked in accounting and utilizes that knowledge to her advantage while handling cases involving EDD audits from San Francisco to San Diego. 

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Allison Soares

Allison Soares, a renowned tax attorney, excels in representing clients before the IRS, FTB, EDD, and CDTFA. With a Bachelor of Arts in Finance from the University of Wisconsin, Milwaukee, and a transformative teaching stint in Brazil, Allison’s diverse background enriches her legal expertise. She pursued law at St. Thomas University School of Law, Miami, complementing it with an MBA in accounting and forensic accounting. Further honing her skills, she obtained a Master of Laws in Taxation from the University of San Diego School of Law. As an adjunct professor at San Diego State University, Allison imparts her knowledge in tax procedures, practice, and ethics. Her accolades include being named Best of the Bar by the San Diego Business Journal and multiple Super Lawyer recognitions. Committed to community service, she volunteers with Forever Balboa Park and Friends of Balboa Park. Allison’s authoritative contributions in tax law are showcased through her publications and speaking engagements.

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