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April 04, 2023 
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0 comments The IRS is warning business owners to beware of Employee Retention Credit scams that may falsely claim the ERC credit for their business. In this video we show you 7 ways you can spot an Employee Retention Credit scam so you don’t get into trouble with the IRS.
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Useful Links:
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RS CIRCULAR 230, SECTION 10.27 (page 21)
AICPA CODE OF CONDUCT, SECTION 1.510 (page 117)
AICPA Podcast Contingency Fee Episode
Avoiding ERC Scams and Fraudulent Service Providers
At FreedomTax Accounting, we want to warn businesses about ERC scams. The IRS has warned that businesses should not fall into employee retention credit scams. In this blog, we will discuss the dangers of such scams and how to spot them. We will also provide essential information about the Employee Retention Credit (ERC) that every business owner should know.
Firstly, it is essential to understand what the ERC is. The employee retention credit has been around since 2020, and it is the only COVID-related business help that is still available. The ERC allows businesses to claim up to $26,000 per employee if they are eligible. However, it is crucial to note that not every business can qualify for employee retention credit.
7 Employee Retention Credit (ERC) Scams & Fraud
The IRS has warned that there are ERC service providers that are scams. They are applying for the employee retention credit for businesses that are not eligible to receive them. When businesses apply for employee retention credit, they are essentially sending the IRS amended returns. The IRS will not check if the business is eligible or not; they will send the funds if the form is filled out correctly. However, the IRS has said that they will audit later on. Therefore, if a business receives these funds incorrectly, their chances of getting audited in the future are very high, and they will get into trouble with the IRS.
Let’s look at the seven ways that businesses can spot an ERC scam:
Scam alert one:
If an ERC service provider tells businesses that they guarantee they’re getting the employee retention credit or they tell them that all businesses qualify, it is a scam. Not every business can qualify for the employee retention credit, and no one can guarantee that they are eligible.
Scam alert two:
They don’t tell businesses that if they file for this credit, they need to amend their 2020 and 2021 tax returns. It is essential to know that if businesses claim the employee retention credit from 2020 and 2021, they need to amend their tax returns. If a business is an S Corp or a partnership, they will have to amend the business tax return and personal tax return for every owner of the S Corp or partnership, and they will have a higher tax liability.
Scam alert three:
They tell businesses that they can claim the employee retention credit for wages paid to themselves. This is false, as only wages paid to employees are eligible for the credit.
Scam alert four:
They charge businesses a percentage of the credit. ERC service providers should charge a flat fee or hourly rate, and they should not take a percentage of the credit.
Scam alert five:
They tell businesses that they don’t need to have a revenue decline to claim the employee retention credit. To be eligible for the credit, the business must have experienced a significant decline in revenue.
Scam alert six:
They don’t ask businesses for documentation to support their claim. ERC service providers should ask for documentation to support the claim, such as proof of revenue decline, employee wages, and benefits.
Scam alert seven:
They ask businesses to sign a blank tax return. Businesses should never sign a blank tax return, as this could lead to identity theft or other fraudulent activities.
It is crucial for businesses to be aware of these warning signs so that they can avoid falling into an ERC scam. While there are many good employee retention credit providers out there, there are also many bad ones that are looking to scam businesses for a lot of money.
In conclusion, the employee retention credit can be a significant help to businesses, but it is essential to know the eligibility criteria and be aware of the warning signs of an ERC scam. Businesses should always choose a reputable ERC service.
Video transcript
The IRS is once again warning businesses not to fall into an ERC or employee retention credit scam. The IRS says that if your business get these funds and your business is really not eligible to get the employee retention credit, you and your business are going to get into a lot of trouble with the IRS. So in this video, we’re going to show you seven ways that you can spot an ERC scam. That’s what we’re going to talk about in this video. Hello from FreedomTax Accounting. We’re an accounting firm where we have been providing quality tax and accounting services now for over 20 years. If you are new to this channel, we provide strategies for small business owners so they can achieve their financial goals. If that is a topic that you like, please subscribe to our channel. Now, for the last several months, the IRS has released several warnings, warning small business owners not to fall and be careful because there are a lot of ERC service providers that are scams, and they are basically applying for the employee retention credit for businesses even though they’re not eligible to get them. How is this possible?
Because when you apply for the employee retention credit, you’re basically sending the IRS some amended returns and the IRS is going to believe that you are eligible. The IRS will not check if you are eligible or not. They’re going to send you the funds if the form is filled out correctly. Now, the IRS has said that later on they’re going to audit. So that’s the danger on applying for the employee retention credit falsely. Now, the ERC is not new. Many of these businesses are telling business owners that there is a new credit from the IRS. The employee retention credit has been around since 2020. It is actually the only COVID related business help that is still available. The SBA EIDL loan is gone. The PPP is over. But the employee retention credit is the only COVID related business help that is still available and you can still get it. All the way back since 2020, we have been able to get our clients thousands and thousands of dollars. And it’s true, if your business is eligible, you can get up to $26,000 per employee. So we’re talking about a lot of money that you can get for your business from the IRS.
But you need to be careful because it’s so easy to fall into a scam that if your business gets these funds incorrectly, your chances of getting audited in the future are very high and you’re going to get into trouble with the IRS. So that’s why we’re going to show you seven things that you can see from an ERC provider that may warn you that it is a scam. Now, there are a lot of good employee retention credit providers out there. They’re honest and they will do the right thing. But you need to be careful because there’s a lot of bad ones that are going to scam you for a lot of money. Let’s look at the presentation. Once again, this is one of the IRS warnings. You can see it all over the IRS website. I put this here so you can see that we’re not making this up. The IRS is very concerned that a lot of businesses are falling into these ERC scams and that they are falsely claiming the credit. Once again, let’s look at seven ways you can spot the ERC scam and make sure to stay till number seven because that’s the big one.
All right? So scam alert number one, if they tell you ell you that they guarantee that you’re getting the employee retention credit, or they tell you that all businesses qualify, that is false because not every business can qualify for the employee retention credit and they can guarantee that you are eligible or not. So that is scam alert number one. Scam alert number two, and this is very important. They don’t tell you that if you file for this credit, you need to amend your 2020 and your 2021 tax returns. Now, I’m going to dive deeper into this one because this is very important. You can claim the employee retention credit from 2020 and 2021. Now, if you claim 2020 ERC, you need to amend your business’s 2020 tax return. Whatever you claim from the credit, you need to add that amount to your business’s net profit, meaning that your business now owes taxes. And if your business is an S Corp or a partnership, you’re going to have to amend the business tax return and your personal tax return, and you’re going to have a higher tax liability. Now, in most cases, the amount of credit that you get from the ERC, it’s so high that is worth it to pay these extra taxes.
That’s if the ERC is done correctly. Same way, if you’re claiming the ERC for 2021, you would need to amend your 2021 business tax return. And if your business is an S Corp or a partnership, you need to amend your personal tax return for every owner of the S Corp or every owner of the partnership. And you’re going to have a higher tax liability. And if you’re claiming 2020 and 2021, basically, you’re going to have to amend both years corporate taxes and both years personal taxes. So this is something that we see often people calling us that they’re offering them the ERC and they don’t know they need to amend their tax returns. So this is very important that you know how the ERC works. Okay? So scam alert number three. They’re asking for sensitive information about you, the business owner, or your employees. Since this is a credit related to payroll, you can fall easily into the scam where they tell you, Well, in order to apply for the credit, you need to send us your social security number, the social security number of your employees. And this is false. You do not need to provide an ERC provider your social security number nor your employee’s sensitive information to get the credit.
They’re basically asking for this for identity theft, so be careful. Scam alert number 4. They don’t tell you that you are ultimately responsible with the IRS because whatever form they send to the IRS is your signature and your name on it. So if they did it correctly, at the end of the day, the IRS says you are responsible to make sure that you are eligible because you’re signing the form telling the IRS that you’re sure that you are eligible for these funds. Now, if you get these funds and you’re not eligible and the IRS finds out, your business is going to have to pay all those funds back with penalties and interest. So believe me, to be careful, many of these scammersbers are guaranteeing the ERC. I would say it’s a guaranteed audit because the IRS knows there’s a lot of scams going around, a lot of businesses getting thousands of dollars where they’re not supposed to. So we feel at some point the IRS is going to start auditing these credits. So be careful. Scam alert number five. They tell you that they’re going to give you the ERC funds upfront via a loan.
Why? When you send in the employee retention credit form to the IRS, right now, it can take nine months to get the employee retention credit cheque from the IRS. So these cameras are telling business owners, you don’t have to wait nine months. We’re going to give you the funds upfront via a loan. And the months that you’re waiting for the cheque, you’re going to pay the loan with interest. And when you get the IRS cheque, you just pay off the loan that you got. They are saying you’re there. First of all, if you don’t get the ERC funds, you’re stuck with the loan. So be very careful if they’re offering you a loan to get the ERC funds up front. Scam alert number six. They quickly tell you that you qualify for the ERC, and in a very fast manner, they tell you how much you’re going to get. And this one was impressive. I saw a website where you basically answered four questions on the website, and it was calculating the ERC. And really, in 90 seconds, it told me, yes, your business is eligible and you’re going to get $60,000. There’s no way you can check if your business is eligible, get alone the amount in 90 seconds.
We have been doing this for two years now. And the most simple ERC case I can think of, the fastest one, maybe an hour of work. And that’s because we do their accounting and we do their payroll. So we have all their financial information. So because they need to check your profit and loss, they need to check your payroll, they need to check your PPP. So all of these factors determine if you’re eligible or not. And it’s basically impossible for someone to tell you that you’re eligible and the amount in 90 seconds. So be very careful if they do this quickly. Now, the big one. This one, scam alert number 7. And there’s a lot of controversy behind this one. And it’s that they’re charging you a percentage or a contingency fee for the ERC. Basically, they’re telling people our fee is going to be 20% of the credit that you’re going to get. Now, this one is controversial because there is an interpretation of the law that may allow for this. But once we reviewed it, we really felt it was illegal. And we even back in 2020, we felt for this. At the beginning, we were even charging a percentage, a very small percentage compared to what they’re charging all over the place.
That is 20%, 30%. But then when we noted and we studied the tax code, we changed it. We don’t charge a percentage. We changed our ways of doing this work on an hourly fee. Okay? Now, so if your employee retention credit provider tells you that their fee is a percentage, be very careful. It may be a scam. What backs this up? There’s the IRS circular 230 section 1027. There’s the AISPA Code of Conduct section 1.510. You can check that part of the tax code, and there it tells you why for this service providers cannot charge a percentage. Now, if you don’t believe me, on the bottom of this video, I’m going to provide a link to the AISPA podcast where you’re going to listen to the AISPA Vice President of Tax Policy explaining why ERC providers cannot charge a percentage. So I’m going to put a link to that podcast at the description of this video. Now, you don’t need to be afraid, just be careful. If you’re eligible to get this credit, it’s a great credit to get. It’s a lot of money that your business is going to get. But you need to be careful because we want you to have peace of mind.
We want you to walk on the beach, having peace of mind that you’re not going to get into trouble with the IRS. That’s why we are offering also the ERC retention credit, providing you peace of mind that we make sure that if we will tell you if you’re eligible or not. If you’re not eligible, we will tell you. If you’re eligible, we will get you the max ERC legally possible. And you can have peace of mind knowing that I got these funds from the IRS and I won’t get into trouble in the future. Talk to Carmen. Carmen is my co worker. She’s our ERC expert. She has been able to get thousands of dollars for our clients legally. And our clients have peace of mind knowing that they won’t have issues with the IRS. In the description of this video, I’m going to put the ERC consultation link where you can make an appointment with Carmen and make sure that you get your ERC legally. Okay? So now you know the seven ways on how to spot an ERC scam. Be very careful. I hope that you have enjoyed this information. If you have received value from this video, like it and share it with another business owner that can take advantage of this information.
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