IRS Warns Businesses of Aggressive Marketing for Employee Retention Credit Claims
If you’re a small business owner or self-employed individual, you’ve likely heard about the Employee Retention Credit (ERC). This refundable tax credit was introduced as part of the CARES Act to help businesses keep employees on their payroll during the pandemic. However, recent warnings from the IRS should have you thinking twice about the aggressive marketing campaigns around these claims.
What is the Employee Retention Credit (ERC)?
The ERC provides eligible employers with a credit against payroll taxes for a portion of the qualified wages paid to employees during specific periods of the pandemic. It's a legitimate benefit aimed at helping businesses recover from the economic impact of COVID-19. However, it has also become a target for some aggressive marketers promising "free money" or "easy" qualifications.
Why is the IRS Warning Businesses?
The IRS recently issued a warning about misleading advertisements and aggressive marketing tactics that claim businesses are entitled to substantial ERC refunds, often with little or no regard for eligibility requirements. These promotions, often seen on social media, in emails, or through cold calls, can lure businesses into filing improper claims. The IRS has expressed concern that businesses, especially those unfamiliar with the ERC rules, may be persuaded into applying for credits they are not eligible for, potentially resulting in audits, penalties, and repayment of credits.
Red Flags to Watch For
Guarantees of Large Refunds: Be cautious of companies guaranteeing large refunds without reviewing your specific situation. The ERC calculation depends on several factors, including the number of employees, wages paid, and the business's specific circumstances.
Aggressive Marketing Tactics: Be wary of unsolicited calls or messages from companies promoting ERC services, especially those using high-pressure tactics or promising that you qualify without understanding your business.
Upfront Fees or Contingent Fees Based on Refund Size: Some firms may charge hefty upfront fees or base their fees on a percentage of the refund amount. This could indicate that they are motivated more by their potential gain than your eligibility or compliance.
How to Protect Your Business
Consult a Trusted Tax Professional: Work with a qualified tax professional or CPA familiar with your business and experienced in ERC claims. They can provide proper guidance based on the IRS rules and ensure your claim is legitimate.
Review the Eligibility Criteria: The ERC has specific eligibility requirements, including experiencing a full or partial suspension of business operations due to government orders or a significant decline in gross receipts. Make sure you understand these criteria before applying.
Document Everything: Keep thorough documentation of your claim, including how your business meets the eligibility criteria and how you calculated the credit. This will be crucial if the IRS decides to audit your claim.
Stay Informed: The IRS continues to update its guidance on the ERC. Stay informed by checking the IRS website or working with a trusted tax advisor who keeps up with the latest regulations.
While the Employee Retention Credit can be a valuable benefit for businesses affected by the pandemic, it’s essential to approach this credit cautiously. Be wary of aggressive marketing tactics and promises that seem too good to be true. At The 1099 CPA, we specialize in helping solopreneurs, freelancers, and self-employed individuals navigate complex tax situations like the ERC. Reach out to us for a consultation to ensure your business is compliant and protected.
Stay informed, stay compliant, and remember: If something sounds too good to be true, it probably is.
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