Updated: Jul 25
The ERC tax credit can provide an extraordinary amount of financial relief to small to midsize businesses who were impacted by the COVID-19 pandemic. Business owners eligible for ERC could earn up to $21,000 per employee! This is a significant amount for any business owner looking to reduce the amount of taxes owed.
Aside from reducing the amount of taxes owed, the ERC tax credit can also help struggling businesses pay wages to employees, cover business expenses, and recoup the losses caused by the pandemic. If you are ready to apply, there are some ERC tax credit scams that you should be aware of to make sure that your business does not fall victim.
ERC mills are unqualified vendors who offer services where businesses pay to apply for the ERC tax credit, even if they do not meet the requirements. They also promise businesses more tax savings than what they qualify for. When businesses pay for these services, they are often left without a response or receive an audit from the IRS about an improper claim.
To avoid this scam, it is important to know whether or not you qualify for the ERC tax credit and for what amount. Use an ERC calculator to determine how much you can earn from the tax credit before applying.
The American Institute of Certified Public Accountants has warned against agreeing to services from unqualified professionals. Some ERC vendors use “professionals” who are not actually certified to be performing financial services for you.
Make sure that you are receiving ERC consulting from a qualified expert. Five Star ERC Experts consists of a team of experienced tax consultants and certified tax attorneys to ensure that you are in the best hands possible. Discovering your ERC consultant’s previous experience will help you avoid putting your application in the hands of someone who may not know how to submit the application to the IRS. It can also help you avoid false information on your application.
Inflated Wages for the ERC Application
Inflating wages on your application can put you in hot water with the IRS. Some scammers try to inflate the wages on an ERC application or falsify payroll records to receive a large ERC tax credit. This can be a serious offense with the IRS.
The IRS has already warned of false ERC claims as they have become aware of an increase in these schemes on applications. Inaccurate information on your ERC application can lead to an audit from the IRS that could result in further consequences if guilty.
When you are filling out your ERC application, make sure that any consultant helping you is providing the most accurate payroll information on your application and amended tax return. You do not want to be rejected from the ERC tax credit because of a mistake either you or an unqualified consultant made on your application. An audit from the IRS can be even worse down the road. Five Star ERC Experts has Tax Attorneys and Certified Agents that require revenue documentation. They also provide audit protection because the attorneys sign the application. Some companies are leaving all of that risk with business owners telling them to sign the return.
Fraudulent Parties Claiming to Be the IRS
Some fraudulent parties target businesses that have applied to the ERC tax credit. If you are contacted by someone claiming to be the IRS, make sure you are receiving the call or email from a legitimate form of communication from the IRS. If you are unsure of what this looks like, it’s best to ask your ERC specialist. Five Star ERC Experts has been in tax since 2008 and is a partner you can trust when submitting docs to the IRS.
To check the status of an application, contact your ERC specialist or call the IRS directly at their official number: 800-829-1040. Make sure you do not give out personal or business information if you cannot verify who you are communicating with.
Large Upfront Fees
ERC mills often charge large upfront fees to businesses who want their services. Other scammers may ask businesses to pay a percentage fee based on the amount they receive from the ERC tax credit refund. The IRS sent out a warning in October 2022 about ERC scams involving large fees to help businesses avoid these ERC mills. Five Star ERC Experts does not and hasn’t ever charged up front fees for ERC application submissions.
Mills that try to charge percentage fees based on the amount a business receives from the ERC tax credit often try to inflate the wages reported for the ERC tax credit. Inflating the wages on an application leads to serious implications with the IRS. Certified ERC consultants will make sure that you are reporting the actual wage amount that you qualify for without taking a percentage of that tax credit away from you. Five Star ERC Experts requires documented revenues and payroll reports to ensure its bonafide claim.
Report ERC Scams to the IRS
If you become aware of an ERC scam, whether you found an ERC mill or have been contacted by someone you suspect is a scammer, you can report this directly to the IRS. The IRS has been keeping track of any suspicious scams to send out warnings to businesses interested in applying to the ERC tax credit.
Report scams to the IRS using the following:
IRS phone number: 800-829-1040
IRS Scam and Fraudulent Information Email: email@example.com
For IRS imposter scams, contact the Treasury Inspector General for Tax Administration at 800-366-4484
Make sure you work with an experienced, qualified ERC specialist from a reputable company to avoid any potential scams from the ERC tax credit.