Blog Post

Know the Signs of an Employee Retention Credit Scam

Nathan R. Olansen

If it sounds too good to be true, it probably is. The IRS has sounded the alarm repeatedly regarding a scam involving the Employee Retention Credit (ERC). The IRS recently identified ERC scams as the #1 worst tax scam of its 2023 Dirty Dozen list and the IRS is urging tax practitioners to communicate with clients regarding this issue.

The ERC is a refundable tax credit that was introduced during the COVID-19 pandemic to provide an incentive to employers to keep employees on the payroll during a government shutdown or significant decline in gross receipts. The ERC was available to eligible employers for qualified wages paid after March 12, 2020, and before October 1, 2021 (with an exception for recovery start-up businesses through December 31, 2021).

The eligibility requirements, applicable time periods, and dollar limitations changed several times due to the passage of various federal legislation thereby claiming the ERC is far more complex than these ERC schemes make out.

Perhaps you have heard advertisements, phone calls or text messages claiming your business is eligible for the ERC and claim the application process is “easy.” Some minor celebrities have even been hired to endorse certain companies, ostensibly lending credibility to an otherwise dubious pitch. These third parties ERC companies will often charge large upfront fees or charge a fee based on a percentage of the refund amount the ERC generated. However, many of these ERC scams lie about eligibility requirements and your business will not only need to return the refund and amend employment tax returns but may be subject to penalties and interest. Buried in the fine print of many of the service agreements used by the ERC companies are provisions absolving them from liability for any IRS problems that may arise as a result of a defective claim leaving your company on the hook to retain legal counsel and pay for your own defense in the event of an IRS audit.

If you would like to discuss whether you may be eligible for the ERC, please call us at 757-687-8888 or use our contact form, and we can work together to determine if you truly qualify for the credit. If you have claimed the ERC through a third party, and are worried that you may be subject to an IRS audit (or if you have already received a deficiency notice from the IRS), please contact us so that we can help you resolve any possible underpayment or erroneous refund that occurred.

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Written By Nathan R. Olansen


Nathan R. Olansen is a Shareholder in the law firm of Midgett Preti Olansen. His practice is focused on estate planning, probate and trust administration, IRS and state and local tax audit and tax collection cases, as well as individual and entity tax planning, asset protection and a variety of related transactional matters.

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