Chances are if you are a small business owner you have heard of the ERC or the Employee Retention Credit. This credit was introduced as part of the 2020 CARES Act as a refundable payroll tax credit for employers to encourage employee retention during the pandemic. Since then, numerous “fly by night” companies popped up solely to offer their services in helping businesses to apply for and receive these credits. Many of these companies are using somewhat deceptive practices and “too good to be true” claims to obtain customers. The IRS has issued several warnings to be alert for ERC scams (this one was released in May)
Many of you have probably already received more than one phone call and/or mailer from one or more of these companies estimating what you could be eligible for. The problem is that these companies have no knowledge of your business revenues, payrolls, or operations on which to base these estimates. They use an appealing figure to get you in the door. Once they have your attention, they will do their best to convince you that you are eligible for maximum credits. They fail to mention that not all businesses qualify for the credit. Nor do they explain there are several specific requirements used to determine eligibility. The most common and easiest qualification to substantiate was a decline in sales revenue when comparing 2019 quarters to 2020 and the first three quarters of 2021. Most of these companies are not doing the required due diligence to truly confirm your eligibility.
Since the IRS is aware of the scams happening in this area, they have begun auditing many of the refunds issued. After charging 20-30% or more of your credit, these companies will likely not represent you in ERC audits nor offer a refund of their fees if the IRS rejects your claims and requires repayment of the refunds. In fact, they might have closed shop and moved on at that point.
If you believe you are eligible and have not already spoken with your accountant regarding ERC, please reach out to us to discuss it further. Most payroll providers will assist their clients in claiming these refunds if they qualify. A final note, Gift CPAs can only represent you under an audit of the ERC if we determine that you were eligible for it.
We at Gift CPAs would like to thank you for your business and look forward to a successful 3rd Quarter!