ERTC Fraud | Employee Retention Credit Abuse

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by Andy Bertke in COVID-19, Tax Services

Buyer Beware...The ERTC Is Ripe for Fraud and the IRS is on Alert

During the height of COVID-19, Congress passed several significant Acts to help businesses and non-profits retain their employees. Two major programs emerged from that massive action: the Paycheck Protection Program (PPP) and the Employee Retention Tax Credit (ERTC). Both were instrumental in encouraging organizations to keep people on their payrolls and providing critically needed support to help make it happen.

Buyer beware

The ERTC can still help businesses and non-profits – but it’s an area rife with fraud potential, and the IRS is watching closely. In this post, we’ll look at what to watch out for and how to make sure you’re covering your bases.

A little backstory

At the beginning of the pandemic, the PPP loan program was very popular and provided quick relief to shore up employment. And when the ERTC was initially enacted, organizations that had taken a PPP loan were disqualified from it. With a short timeline and uncertain future, the pressure was on – they had to choose. For most, the PPP loan program was the obvious choice.

The Consolidated Appropriations Act (CAA) of 2021 changed that. In short, this Act allowed businesses and non-profits to participate in the ERTC program even if they had received a PPP loan. That opened up a whole new world of opportunity to keep businesses and non-profits going strong.

The downside (and it’s a big one)

While the CAA opened up a new level of support for organizations that need it, it presented unprecedented challenges as well. These lifeblood programs have been ripe for fraudulent activity, and the ERTC has gained a spotlight reputation as an area of ​​abuse, and the IRS has a laser eye focused on ERTC fraud.

IRS Small Business and Self-Employed Division Commissioner Lia Colbert says “Although the ERC was meant to do good, the IRS is very aware of third parties encouraging businesses to claim the credit. The IRS has warned employers to be on the lookout for third parties encouraging businesses to claim the credit. Although the IRS encourages taxpayers to take advantage of the credit, they are monitoring the situation very closely.”

That doesn’t mean you shouldn’t explore the opportunity if you want to see if your organization qualifies (our ERTC QuickTest can help give you a read on whether it’s right for you, and our team of experienced CPAs vet QuickTest responses before guiding you through next steps). In short, this is a viable credit and should be examined, but be fully informed by someone looking out for your best interest.

Warning signs to watch for

There are warning signs to watch out for:

  • Advertised solicitations or unsolicited calls
  • Large upfront fees
  • Fees based on a percentage of the refund amount
  • Broad-stroke promises that your company qualifies before any due diligence
  • Suggest that your business has nothing to lose by submitting a claim

Be safe and be smart about the ERTC

The fact is that a business or non-profit may find itself in a far worse cash position if it has to pay back the credit than if it never took the credit in the first place.

It’s critical you select a trustworthy organization to carefully analyze the facts and circumstances surrounding qualification for the ERTC. The Barnes Dennig COVID-19 Advisory Team has prepared analyzes for hundreds of taxpayers – and the deliverable we provide you includes calculations and underlying support of the calculations. Plus, we prepare the amended 941s requesting the tax refund – signed by a CPA.

If you think you might qualify

If you think your organization might qualify for the ERTC, our top tax pros are here to help. Take the ERTC QuickTest, and our team will review your answers and contact you with our recommended next steps – even when the answer is that the ERTC probably doesn’t work for you.


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