Employee Retention Credit: 5 Red Flags to Watch Out For!

Are you receiving calls and emails claiming that you qualify for something called the “ERC” or the Employee Retention Credit? Well, you’re not alone. Millions of businesses across the country have been bombarded with overinflated or even false claims about their business’s eligibility for the ERC. Before you entertain any of these communications, here are 5 red flags that you should watch out for when in contact with these ERC ‘specialists’:

employee retention credit

1. Sometimes, It’s in the Name…

Is the party soliciting you called “ERC Pros”, “ERC Specialists”, “ERC Today”, or something similar? If so, it’s clear that the company was created for the sole purpose of making a quick buck from processing employee retention credit claims. More than likely, they don’t have the resources, nor the continuity plans, to establish a long-term relationship with business owners.

2. Who Owns or Started the Company?

Who is the founder of the soliciting ERC company? Is it a qualified tax professional like a tax attorney or a CPA – someone who is qualified to give advice about your business’s eligibility for the ERC? Or is it a real estate investor, a salesperson, or my personal favorite, a ‘serial entrepreneur’? If it’s the latter, it’s likely that they are not tax experts. You probably wouldn’t want them qualifying your business, calculating your benefit, filing your claim, and potentially defending your claim in the case of an audit.

3. No Audit Guidance or Support

Reputable tax professionals like CPAs stand by the accuracy of their work and typically offer their guidance in a situation of an audit. If the soliciting company does not provide any support or guidance as part of their services, it may suggest that they are not confident in their claims or process. Dealing with an IRS audit without proper counsel can be daunting. This is a tremendous red flag to be aware of.

4. Insisting on Qualifying for ERC with a Government-Ordered Shutdown

There are two ways to qualify for the ERC: (1) If your business experienced a decline in gross receipts during the eligibility periods in 2020 or the first 3 calendar quarters of 2021, and/or (2) experienced a shutdown in operations due to a government order. Proving a decline in gross receipts involves objective financial data, making it easier for businesses to establish eligibility. On the other hand, proving a government-ordered shutdown typically requires substantial documentation and evidence to substantiate the claim. It leaves room for more open interpretations and potential abuse. This level of ambiguity is what prompts shady ERC promoters to insist on your eligibility, which could result in inaccurate ERC filings.

5. Emphasizing Unreasonable Fast Claiming Timeframes

While it’s essential to process ERC claims efficiently, a promoter that excessively highlights incredibly fast claiming timeframes may be misleading. The ERC application process requires thoroughness and accuracy to avoid potential complications and delays. A promoter focused solely on speed may sacrifice quality in the process. Trustworthy professionals will set realistic expectations for the claiming process, emphasizing accuracy over haste.

Of course, there are plenty of other potential red flags that should be noted, however, these are the 5 most common Red Flags that our team has encountered. Remember that when you sign the amended 941-X’s you are ultimately responsible for the accuracy of your calculations and inputted data. Inaccurate or mispresented information could result in severe penalties and fines, regardless of whether it was intentional or accidental. That is why it is crucial to work with qualified tax professionals that prioritize accuracy over speed.

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