IRS Issues Alert for Small Businesses Regarding COVID-19 Tax Credit Fraud

The Employee Retention Tax Credit (ERC) is a legitimate government program designed to help small businesses pay their employees during the COVID-19 pandemic. However, the IRS has issued a stern warning against telemarketers and promoters claiming to offer quick and easy eligibility determination without delving into a business's tax situation.

Scammers and unscrupulous promoters are known to run aggressive advertising, direct mail solicitations, and online promotions for the ERC, often misrepresenting and exaggerating who can qualify. Some promoters even ask for big upfront money to handle the application paperwork, promising a share of the refund.

The IRS Commissioner, Danny Werfel, estimates that there has been $2.8 billion in fraud connected to the ERC thus far. Small businesses that receive ERC funds improperly are required to repay them, often with interest and fines.

Scott Volner, President of Catalytic Innovations LLC, is one such small business owner who received $330,000 in ERC funds but now needs to return it all. He was lured by promoters offering to handle the application process for a share of the refund.

The IRS advises small businesses to be wary of any offers to help with the ERC application process. Many ads for the ERC wildly misrepresent and exaggerate who can qualify, sometimes calling it ERTC or the Employee Retention Tax Credit. Unscrupulous companies claim that almost everyone is eligible for the ERC and offer to fill out the application paperwork.

However, the IRS emphasises that small businesses should not ignore the advice of tax professionals. It is crucial to consult with a trusted tax advisor before applying for the ERC or engaging with any promoters offering help with the application process.

The IRS has listed several warning signs to look for to avoid falling victim to ERC scams:

Unsolicited calls or ads promoting an easy application process for the ERC.
Promises of quick eligibility determination without learning about a business's tax situation.
Requests for big upfront money to handle the application paperwork.
Claims that almost everyone is eligible for the ERC.
Exaggerated claims about the amount of funds a business can receive.

By being aware of these warning signs, small businesses can protect themselves from falling victim to ERC scams and ensure they receive the financial assistance they are entitled to during these challenging times.