IRS Warns of Rise in Employee Retention Scams for Businesses: What You Should Know

The Internal Revenue Service (IRS) plays a vital role in safeguarding taxpayers' interests and ensuring compliance with tax laws. Recently, the IRS issued an important alert aimed at businesses and tax-exempt organizations, warning them about the potential risks associated with misleading employee retention scams. These scams exploit the complexities of tax laws and can lead to severe financial and legal consequences. This blog post aims to highlight the key points from the IRS press release and provide simple steps to avoid improperly filing claims.

Understanding Employee Retention Credit (ERC)

The Employee Retention Credit (ERC) is a tax credit introduced by the CARES Act in response to the economic challenges posed by the COVID-19 pandemic. It aims to provide financial support to businesses and tax-exempt organizations by offering a credit against payroll taxes. The ERC allows eligible employers to claim a credit for wages paid to employees, subject to specific criteria outlined by the IRS. This helps to reduce financial strain on struggling businesses, while keeping employees on businesses’ payroll during times of economic difficulty.

Identifying Warning Signs for Misleading Scams

The IRS warns businesses and tax-exempt organizations to remain vigilant against misleading schemes that wrongfully claim the ERC. To protect yourself and your organization, be aware of the following warning signs:

• Unsolicited offers: Be cautious of unsolicited offers through calls, emails, or social media, promising assistance in obtaining the ERC. Legitimate tax professionals do not typically contact businesses without prior engagement—and the IRS will never initiate contact via phone, email, or social media.
• High upfront fees: Scammers may demand large upfront fees for helping with ERC claims. Legitimate tax professionals typically charge reasonable fees, and the cost should not be exorbitant.
• Outlandish refund claims: If a tax preparer guarantees a specific amount of refund without thoroughly reviewing your business's eligibility and wage data, it should raise red flags. The amount you can claim for the ERC depends on several factors, and inflated claims are a sign of potential fraud.
• Unusual payment methods: Scammers often request payment through unconventional methods like cryptocurrency, wire transfers, or gift cards. Legitimate tax professionals generally use traditional payment methods, such as checks or direct bank transfers.

If you notice these warning signs, please reach out to the IRS and report the details of the scam so they can help others to avoid becoming victims.

Steps to Avoid Becoming a Victim

To ensure you file ERC claims accurately and avoid falling victim to scams, follow these simple steps:

1. Understand eligibility requirements: Familiarize yourself with the IRS guidelines on ERC eligibility. The criteria consider factors such as business size, financial impact, and government-mandated restrictions. Review the IRS website or consult a qualified tax professional for guidance. Knowing for yourself whether or not you qualify for the ERC can help you to recognize fraudulent claims when you see them.
2. Use reputable tax professionals: Seek assistance from trustworthy tax professionals who have experience in tax credit programs. Verify their credentials, reputation, and track record before engaging their services. Reliable professionals will provide transparent information and follow ethical practices.
3. Maintain proper documentation: Maintain accurate records of employee wages, eligible expenses, and other supporting documents required for ERC claims. Detailed documentation will help you substantiate your claim and provide a clear audit trail if necessary.
4. Be cautious with personal information: Protect your personal and business information. Do not share sensitive data unless you are confident in the legitimacy of the party requesting it. The IRS or legitimate tax professionals will never ask for personal information via email or phone without prior authorization.
5. Report suspicious activity: If you suspect fraudulent activity or encounter a misleading scam, report it immediately. Notify the IRS by forwarding suspicious emails to phishing@irs.gov or filing a complaint with the Federal Trade Commission (FTC) through their official website.

The IRS press release serves as an important reminder for businesses and tax-exempt organizations to remain vigilant against misleading employee retention scams. By familiarizing yourself with the warning signs and following the recommended steps, you can protect your organization from potential financial loss and legal consequences. Be proactive in understanding the ERC eligibility requirements, engage reputable tax professionals, maintain proper documentation, and report suspicious activity promptly. By taking these precautions, you can confidently navigate the complexities of tax laws and ensure compliance while safeguarding your organization's financial well-being.

If you’re uncertain about your eligibility for the employee retention credit, or if you have other questions regarding your tax return, contact Peacock & French, CPAs, today. Our trustworthy and experienced ta professionals can review your financial situation in detail and help you with filing your tax return.