The Employee Retention Credit, or ERC, was instituted as a part of the CARES Act of 2020 to help employers retain employees during the deadly COVID pandemic. The government’s motivation was to help struggling businesses during a difficult time. For qualifying businesses, the credit could be as much as $26,000 per employee, and covered the period March 13, 2020, through December 31, 2021.
Unfortunately, the arrangement produced unscrupulous promoters who developed a myriad of schemes that took advantage of vulnerable employers in small and midsize businesses. Promoters lured victims through aggressive marketing, direct mailings, phone calls, and other means, and often left out or masked key details. They might have erroneously guaranteed a business’s eligibility before even reviewing the circumstances. They might promise immediate refunds. Often, they demanded large upfront fees. And many would even tell businesses owners to ignore the advice of their trusted tax professionals.
The IRS has begun to act against ERC fraud. They are sending letters to businesses that may have claimed the credit in error. If you were one of those employers who suspects that they may have been scammed, here is what you need to know. If your business did not qualify for the ERC, you must repay the credit with interest and penalties. You may also be subject to audits and civil or criminal penalties. Therefore, the sooner you address this issue and come forward, the better.
If you believe that your business did not qualify for the ERC, immediately withdraw your credit claim. See IRS.gov for information on the withdrawal process. If you only need to reduce the credit amount, you may be able to amend your returns. If you have received money for the credit, you will need to make arrangements with the Service to pay the credit amount back.
If you suspect that you’ve been scammed, or that there are other errors or omissions on your return, call this office for a consultation.