STOPPING THE SCAM: IRS CRACKING DOWN ON FALSE ERC CLAIMS

By Tricia Petteys, Payroll Vault Franchising, LLC

The IRS has made several big announcements recently. First, in September, it enacted a moratorium for processing new claims, due to a huge backlog and rampant fraudulent filings. In October, they announced a claim withdrawal process for business owners who may have been the target of a credit filing scam or who have doubts after filing that they actually qualify for the tax credit.

As chief operating officer and co-founder of a payroll service company that specializes in serving small businesses, we have successfully processed tens of millions of dollars of ERC credits for clients. But we also know many small business owners who were convinced to file for ERC by heavy-handed marketing used by questionable tax filing companies.

It’s more important now than ever for business owners to know the facts about ERC qualifications, how to spot a filing scam attempt, and how to withdraw a filing if they think they’ve made a mistake.

ERC Situation Overview

To recap, ERC is a special tax credit offered to employers who paid wages between March 13, 2020, and December 31, 2021, during the COVID-19 pandemic shutdown. To qualify, an employer must have experienced one of the following during this time period:

• Sustained a full or partial suspension of operations due to an order from an appropriate governmental authority limiting commerce, travel, or group meetings because of COVID-19 during 2020 or the first three quarters of 2021.
• Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021.
• Qualified as a recovery startup business for the third or fourth quarters of 2021

Additional information on ERC qualifications and how to file a claim are available on the IRS website.

Due to the large number of claims filed, the IRS announced on September 14 that it had a backlog of about 600,000 claims, and it was seeing an alarming number of fraudulent claims. To address the problem, the IRS put a moratorium on processing new claims, extending the original 90-day waiting period for valid claims to 180 days. Deadlines for filing and processing remain unchanged, however, which means business owners must be vigilant to avoid scams.

Spotting a Scam

Business owners have a limited time to file for ERC. According to the IRS, the filing deadline for the 2020 tax period is April 15, 2024, and the deadline for the 2021 tax period is April 15, 2025. Because of this shrinking window, unscrupulous filing companies will pressure business owners to file quickly and without doing their due diligence to ensure they’re qualified. To avoid being taken in by these scams, business owners should watch for these warning signs of an ERC scam:

• Unsolicited contact from companies claiming to help with ERC filings. 
• Instant eligibility determination promises, i.e., “We can do it in minutes.” • Large upfront fees or fees based on refund size. 
• A refusal to sign the ERC filing.
• Misleading claims about ERC risks, i.e., “There’s no penalty for an ineligible filing.”
• A lack of clarity on ERC eligibility.

 As a payroll professional whose company does business tax filings, I highly recommend business owners only work with reputable tax professionals when filing any claims. Make sure to check the eligibility and computation worksheet and perform a self-evaluation. Business owners shouldn’t file a claim if they have doubts about their qualifications. However, if they’ve already filed a doubtful claim, there is a solution.

Withdrawing Questionable Claims

On October 19, the IRS announced a new withdrawal system for business owners who suspect their ERC filings may not be valid. Fraudulent claims that were filed willingly won’t exempt the filer from criminal investigation and subsequent prosecution, but business owners won’t be penalized or fined.

Employers can withdraw an ERC claim if they meet four criteria:

• They filed an adjusted employment return (Forms 941-X, 943-X 944-X, or CT-1X).
• They filed the return only for ERC with no other adjustments.
• They are withdrawing the entire amount of the ERC claim.
• Either the IRS hasn’t paid the employer’s claim, or the employer hasn’t cashed or deposited the refund check.

 An employer that wants to withdraw an ERC claim should follow special instructions, which are available on the IRS website. To summarize, employers who filed through a professional payroll company should consult their payroll service provider; the provider may need to file the withdrawal request, depending on whether the claim was filed individually or batched together. Employers who file claims on their own should fax their withdrawal requests by computer or mobile device; requests may also be mailed, though this takes longer. Lastly, employers who have been notified that they’re under audit may send the request to their assigned examiners or respond to the audit notice if they don’t have an assigned examiner.

Business owners who have received a refund check can still withdraw a claim if they do so before cashing or depositing. They should mail the voided check with their withdrawal request, using the instructions available on the IRS website.

ERC is a valuable benefit to employers who kept their employees through a difficult economic period. Unfortunately, there will always be those who will take advantage of goodwill efforts and programs designed to help others. It falls to business owners to watch out for attempts to lure them into filing unqualified claims — so this financial assistance can reach those who need it most.

Tricia Petteys is the chief operating officer and co-founder of Payroll Vault Franchising, LLC. For more information about IFA franchisor member Payroll Vault Franchising, LLC, please visit franchise.org/franchise-opportunities/payroll-vaultfranchising-llc.