Over the past year, we have seen a growing number of ERC “specialists” employing aggressive tactics in helping business owners claim the Employee Retention Credit. These ERC “specialists”, motivated by contingency fees, often are not conveying key information about the qualifying criteria when they encourage businesses to apply.  

Our firm believes the fundamental question is:  “Do your facts and circumstances satisfy the intent of the law?”  Qualifying criteria include showing a decline in quarterly gross receipts that meet a defined threshold and/or experiencing a complete or partial shutdown due to a government order. 

The partial shutdown concept is what these specialists are attempting to exploit, and business owners who have suffered through the pandemic can be easy targets when told they qualify for free money.

While the partial shutdown criteria is subject to interpretation, it is not appropriate in every situation. Receiving a credit for which a business isn’t eligible could have an adverse impact on your business.   

From an auditing standpoint, the IRS has identified claims prepared by these so-called “specialists” as a high risk audit area. While the IRS is currently backlogged, they are adding additional staff to focus on Covid-19 related fraud.  If a future audit determines an ineligible credit was issued, the business is required to return the money and may be subject to penalties and interest. 

 Businesses should be aware the following:

• Contingency fee charges: Businesses should be charging you for the time and effort put into the applications and work filing for credits rather than guaranteeing the business owner will receive a credit.
• Emphasis on submitting ERC applications quickly: Businesses have until 2024 to submit amended returns for the ERC pertaining to 2020 and have until 2025 to amend for 2021. There is plenty of time to focus on the qualifications for the credit and properly apply to avoid any incorrect filings.
• Contact with vendors who are not a CPA:  Companies will hire a salesperson to push this credit on employers while they have no knowledge on tax laws or regulations. If you have any questions about a vendor, contact your Dermody, Burke and Brown Tax Professional for advice.
• Group advertising: If a business is advertising with lines like “all businesses qualify” they are incorrect. All businesses must qualify based on their own individual circumstances.

Among these concerns, the IRS has provided form 3949-A, Informational Referral, which allows any firm, individual, or CPA to report questionable ERC Mills anonymously.

The complexity and potential risks related to the Employee Retention Credit makes it imperative to work with a reputable consulting or accounting firm.

If you have any questions please contact your tax professional at Dermody, Burke, and Brown, CPAs.