Here Are 4 Most Common ERC Scams and Tips To Be Safe

The Internal Revenue Service (IRS) has warned about Employee Retention Credit (ERC) scams in its annual “Dirty Dozen” list. While the ERC is a legitimate tax credit established by the CARES Act of 2020, the IRS has witnessed a high volume of fraudulent ERC claims from taxpayers and some ERC promoters, which led to its inclusion in the list. The growing number of ERC scams involve scammers employing creative means of scamming businesses out of excessive fees or even engaging in outright fraud. Thus, taxpayers should be aware of these scams and avoid getting duped. Here’s a look at the most common ERC scams and how to avoid them.

1. ERC Phone Call Scams

The ERC phone call scam involves third parties soliciting employers over the phone with false claims of ERC eligibility often overlooking the federal government’s requirements. Obtaining an ERC under false circumstances can cause serious problems with the IRS for taxpayers. Even people who qualify for the credit are targeted by phone scammers who charge an exorbitant and unnecessary hefty percentage of the refund for a service that is not needed.

2. Identity Theft Scams

Identity theft scams involve scammers posing as tax advisors to collect sensitive information from taxpayers about their employer the business, its employees, and finances. This information is later used by the fraudsters to make fake ERC appeals. This has been a long-standing issue, not only to ERC but on the internet in general.

3. Fake/Misleading Fee Structures

In this, scammers misrepresent themselves as an advocate for the taxpayer and make improper assurances about taxpayer eligibility. They further ignore proper credit computation rules intentionally to maximize their fees. While normally it’s okay to charge a fee that is a percentage of the ERC refund, scammers often charge a large and mostly nonrefundable fee upfront. They then delay or just avoid filing the claim if they think it will be rejected. Scammers also artificially inflate the initial “promise” of a certain claim amount to charge an increased fee.

4. Inflated Qualified Wages Paid

This scam works with qualified wages paid, and it involves an employer that inflates their employees’ qualified wages paid to increase the amount of the ERC business tax credits. All employers must ensure to file for ERC correctly as improperly claiming credit may also result in having to repay the credit along with penalties and interest.

Here are The Top Tips to Avoid ERC Scams

1. Work Only with The Trusted Tax Professionals

Working with a seasoned tax professional while facing a tax concern is paramount as tax compliance can be incredibly complex. Working with unsolicited tax advice from third parties who reach out via phone or email can be dangerous.

2. Avoid Firms offering Guaranteed Eligibility

Firms that promise free money, credit, or refund, without proper knowledge of the business are the first indicator of a scam. Companies must meet a certain threshold to qualify for an ERC refund and any firm that promises a bypass of this may be looking to scam people. Anyone posing as an ERC promoter who is unable to work out the gross revenue, paid wages, and other requirements should be avoided.

3. Confirm ERC Eligibility and Credentials of The Firms

Any firm working with ERC should openly discuss the business’s eligibility for the credit, and their professional tax credentials and share the ERC cases they’ve resolved favorably to date. If any representative refuses to come forth on any of these subjects, they are unlikely to be a good fit.

4. Prioritize Personal Communication

ERC scammers generally rely on marketing blasts to hook taxpayers. Thus, working with tax advisors who refuse to meet in person or can’t schedule phone conferences can be a bad bet.

5. Contact the IRS

In case a taxpayer is contacted by text or email from someone pretending to be from the IRS, they should avoid clicking on any links or scanning any QR codes. This information should be verified with the IRS and be sent directly to the IRD at phishing@irs.gov or call the IRS at 800-829-1040. Taxpayers can also report scams to the Treasury Inspector General for Tax Administration by calling 800-366-4484.