The Internal Revenue Service issued a renewed warning urging people to carefully review the Employee Retention Credit (ERC) guidelines before trying to claim the credit as dishonest promoters continue pushing ineligible people to file.
Third parties continue aggressively promoting these ERC schemes on radio and online. They charge large upfront fees or a fee that is contingent on the amount of the refund. Additionally, the promoters often do not inform taxpayers that wage deductions claimed on the business’s federal income tax return must be reduced by the amount of the credit.
“While this is a legitimate credit that has provided a financial lifeline to millions of businesses, there continue to be promoters who aggressively mislead people and businesses into thinking they can claim these credits,” said Acting IRS Commissioner Doug O’Donnell. “Anyone who is considering claiming this credit needs to carefully review the guidelines. If the tax professional they’re using raises questions about the accuracy of the Employee Retention Credit claim, people should listen to their advice. The IRS is actively auditing and conducting criminal investigations related to these false claims. People need to think twice before claiming this.”
The IRS has been warning about this scheme since last fall, but there continue to be attempts to claim the ERC during the 2023 tax filing season. Tax professionals note they continue to be pressured by people wanting to claim credits improperly.
People and businesses can avoid this scheme by not filing improper claims in the first place. If you filed an income tax return deducting qualified wages before filing an employment tax return claiming the credit, you should file an amended income tax return to correct any overstated wage deduction.
Businesses should be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.
What is the ERC?
The ERC is a refundable tax credit designed for businesses who continued paying employees while shut down due to the COVID-19 pandemic or who had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021. Eligible taxpayers can claim the ERC on an original or amended employment tax return for a period within those dates.
If you think you are eligible for the tax credit, we will help you find out for sure, and help you file for it if eligible. Get our help here.