Employee retention credit (ERC) scams have increased, leaving many employers defrauded and without recourse. With the U.S. economy in a recession, employers have been forced to deal with the complicated and ever-changing rules that apply to the ERC. Scammers have taken advantage of the situation, and are submitting false claims on behalf of naïve employers.
Ramos Law’s team of knowledgeable consumer law attorneys in Colorado understands how to navigate the complexities of financial laws, such as those regarding employee retention credits. We have the experience to work with state and federal agencies for assistance in recovering lost funds and hold those responsible accountable.
What is Employee Retention Credit?
The Employee Retention Credit (ERC) was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 to help employers retain employees during the pandemic. It is a refundable tax credit that may be up to $26,000 in wages paid to each employee from March 13th, 2020, through December 31st, 2021. To qualify for the Employee Retention Credit, a business must have experienced either:
- Full or partial closure due to government orders related to COVID-19, or
- Significant declines in gross receipts (or revenue) during any calendar quarter of 2020 compared with the same quarter of 2019.
The credit helps struggling businesses offset the cost of salaries and can provide a much-needed lifeline during tough financial times. It is also an incentive for employers to retain their employees by avoiding layoffs or salary reductions. Unfortunately, third parties are trying to take advantage of individuals and businesses who are poorly informed about the ERC.
Understanding ERC Scams
The ERC can only be legitimately claimed on a federal employment tax return. However, scammers promise to get employers their credit quickly, often requiring a hefty fee upfront or ongoing monthly payments. In some cases, those who pay them back end up having their entire investment wasted as they do not qualify for the credit in the first place.
Advertisements encourage employers to “apply” for money through ERC claims without proper eligibility. These ads are prevalent across various platforms, such as radio, TV, and social media. Some may even mimic official government letters, texts, emails, or phone calls, falsely advertising ERC eligibility.
Employers must remain vigilant and ensure they meet the requirements before claiming credit. You can consult with a consumer law attorney in Colorado first to learn more about your business’s eligibility.
How To Avoid ERC Scams
Knowing the signs of ERC scams and how to avoid them is essential. Here are some things to look out for:
Unsolicited ads, calls, emails, or texts from unfamiliar individuals or entities.
Claims that a promoter or company can quickly determine your eligibility for the ERC.
Promoters that charge hefty upfront fees to help you claim the credit.
Tax preparers who base their fees on a percentage of the ERC refund amount; this is unethical.
Promoters who claim you qualify for the credit without discussing your tax situation thoroughly.
Promoters who urge you to submit a claim by assuring you have nothing to lose. Improperly claiming the credit can lead to repayment obligations, substantial interest, and penalties.
Promoters that state that you qualify for the credit before discussing your tax situation.
Statements from the promoter urging you to submit the claim because there is nothing to lose. In reality, those improperly receiving the credit could have to repay the credit – along with substantial interest and penalties.
More resources are available to help employers understand ERC scams and how to avoid them. Read the IRS’s page on Employee Retention Credit for more information on the employee retention credit.
How to Identify an ERC Scam
There are a few telltale signs of an ERC scam:
- Promoters who guarantee eligibility for the credit or promise quick refunds.
- Requests for personal information (i.e., Social Security, bank account, or credit card information).
- Offers to file your taxes without proof that the promoter is a licensed tax preparer.
- Promoters who ask you to sign a blank or incomplete form.
- Promoters who offer to process your claim without fully explaining the terms and conditions and potential risks associated with the ERC.
Consequences of ERC Scams
If you have been scammed, protecting your rights is essential. Businesses that did not qualify for the ERC and got scammed must repay the credit with interest and penalties. Not only does this impede their financial stability, but it also leads to a long-term adverse effect on businesses’ reputations.
The IRS has already begun to act against ERC fraud, sending letters to businesses that claim the credit in error. Business owners caught claiming the credit improperly may be subject to an audit and civil or criminal penalties.
How Ramos Law’s Consumer Law Attorneys Can Help
Employee Retention Credit scams are on the rise and can devastate small businesses that fall prey to them. Businesses must remain vigilant against scammers who promise quick results for a hefty fee.
At Ramos Law, our consumer law attorneys in Colorado have the experience and expertise to help those affected by ERC scams. Our team of attorneys will work hard to ensure justice is served and that you get your money back. If you have fallen victim to an ERC scam, contact Ramos Law today for a free assessment of your case and to learn more about how we can help.