Employee retention credit can be valuable, but don’t get scammed


This blog post was originally published on October 14, 2022. It was updated on April 18, 2023.

IRS warns of ERC consultants targeting taxpayers with aggressive claims and high fees

The Internal Revenue Service, American Institute of Certified Public Accountants and other government agencies have recently published alerts to warn employers and tax practitioners of predatory consultants advising businesses to the claim the Employee Retention Credit (ERC) when they may not qualify.

According to the IRS, some third parties are taking improper positions related to taxpayer eligibility for and computation of the credit. These consultants often charge large upfront sums or high contingency fees without informing taxpayers that wage deductions claimed on the business’ federal income tax return must be reduced by the amount of the credit. They also may not mention that there is generally no “double dipping” between credits and stimulus programs. For example, a taxpayer cannot use the same wages for Paycheck Protection Program (PPP) loan forgiveness and the ERC.

The IRS warns “Businesses are encouraged to be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.”

In some cases, overstated claims are based upon misguided understanding of the complex rules and regulations surrounding the credit.

The Employee Retention Credit is a fully refundable tax credit for employers that meet certain criteria and applies to qualified wages and employer paid health insurance for the period March 13, 2020, through September 30, 2021. For certain employers, the credit is available through December 31, 2021.

The ERC is available for eligible employers that carried on a trade or business during calendar years 2020 and 2021 that experienced a significant decline in gross income or were affected in a more than nominal way due to a government order to fully or partially suspend normal operations. This applies to for profit and not for profit entities and sole proprietorships that have qualified wages.

Generally, taxpayers may correct overreported taxes (including claiming the ERC) on a previously filed Form 941 if they file Form 941-X within 3 years of the original due date of Form 941 or 2 years from the date they paid the tax reported on Form 941, whichever is later. Therefore, taxpayers may have until 2024 or even 2025 to claim the ERC, depending on when they filed and paid.

Contact a Kaufman Rossin tax professional to learn more about eligibility requirements for the Employee Retention Credit.

David Merzel, CPA, CFE, EA, is a Entrepreneurial Services Principal at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.

Lindsay Kaiser is a R&D Tax and Cost Segregation Services Manager at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.

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