The Employee Retention Tax Credit (ERC) is a lucrative federal tax incentive that rewards eligible businesses for maintaining employees during the uncertainty of the COVID pandemic. While the events have long since passed, it is possible for eligible organizations to amend past payroll tax returns and claim the incentive. In fact, the window to claim the credit closes once for year of qualifying activities. This means for all 2020 quarters the deadline to apply is April 15, 2024, and for all 2021 quarters the deadline is April 15, 2025. This extended claim period is designed to ensure all businesses able to claim the credit have ample time to do so. While useful to ensure savings are realized, it has also opened the door to misleading and fraudulent marketing activities by ERC mills.
The IRS recently issued yet another warning about the unscrupulous practices of these companies and the potential consequences for taxpayers making inaccurate claims. This warning comes on the heels of several other notices cautioning about such practices. Specifically, the IRS has provided details on the warning signs of aggressive marketing and how promoters lure victims. There is also information on the steps taxpayers can take to protect themselves. To help clients, prospects, and others, Hanson & Co has provided a summary of the key details below.
Warning Signs of Aggressive Marketing
A persistent problem surrounding the ERC has been the aggressive marketing tactics used by ERC mills to capture the attention of taxpayers. Unfortunately, the messaging often includes half-truths or flat out lies about eligibility and potential savings, including:
- Aggressive Marketing – Unsolicited calls, text, or advertisements that mention an easy application process. Although the application process is straightforward it requires complex calculations and significant documentation necessary to substantiate a credit claim.
- Easy Eligibility Determination – Assertions the promoter can determine credit eligibility within minutes.
- Fees – Large upfront fees to claim the credit.
- Automatic Eligibility – Claims the taxpayer receiving a solicitation is eligible without any discussion about taxpayer specifics. This is one of the most farcical aspects of these marketing efforts. The ERC is a complicated credit with complex rules that need to be closely reviewed before eligibility can be determined. No one can know with certainty a taxpayer will qualify without prior discussion.
- Nothing to Lose – There have been reported cases where these companies encourage taxpayers to apply because there is nothing to lose if the claim is rejected. Unfortunately, this is simply not the case. An improperly awarded credit could result in the taxpayer having to repay the misappropriated credit along with substantial interest and penalties.
How Promoters Lure Victims
ERC mills use a variety of tactics to convince taxpayers to apply for the ERC, including:
- Aggressive Marketing – This includes repetitive and targeted marketing across multiple mediums such as radio, television, online, phone calls, and even text messages. Practically every avenue is saturated with messages about the ERC along with false claims that every taxpayer should apply because it is funding, they deserve.
- Direct Mail – Some ERC mills are sending deceptive direct mail which appears to be coming from a government agency but is false. In fact, some purport to be from the “Department of Employee Retention Credit” a non-existent federal agency.
- Omission of Key Details – Promoters often fail to accurately explain all the eligibility requirements which must be met. Instead, broad claims that all business taxpayers qualify without evaluating the individual circumstances of a business.
- Payroll Protection Program – Some ERC mills mislead taxpayers into thinking the credit value is higher than regulations permit. In many cases, they neglect to mention that forgiven PPP loan amounts are exempt from credit inclusion.
The unfortunate reality is that these aggressive and misleading tactics have not abated. This means Denver businesses need to carefully evaluate eligibility and assess the quality of a potential vendor to avoid any unexpected surprises. If you have questions about the Employee Retention Tax Credit, or need assistance with another tax or accounting issue, Hanson & Co can help. For additional information call 303-388-1010 or click here to contact us. We look forward to speaking with you soon.