Top 7 ERTC Watchouts
Published on by Andy Bertke in COVID-19, Tax Services
If you’re getting inundated with calls and emails and ads encouraging you to apply for the Employee Retention Tax Credit (ERTC), you’re not alone. ERTC mills are popping up like mushrooms after a rainstorm – and unfortunately, many of their recommendations are questionable at best – and some could get your organization into real trouble.
IRS Commissioner Danny Werfel stated Tuesday that the agency is in a new phase of increased scrutiny on dubious submissions, intensifying compliance work and adding new procedures to address fraud in the ERTC program. He said, “We continue to see more and more questionable claims coming in following the onslaught of misleading marketing from promoters pushing businesses to apply.”
Werfel also noted that the IRS has increased audit and criminal investigation work on ERTC claims, both on the aggressive promoters and on those businesses filing dubious claims.
To help you protect your organization, we’ve put together the top seven things to watch out for, as well as what to do instead.
1. You don’t qualify under the “supply chain disruption” provision.
The IRS Chief Counsel just issued a memorandum on the broadly interpreted and often-cited “supply chain disruption” provision, including examples of companies that do and do not qualify under it. As we wrote in our last blog post, “supply chain disruption” is very narrowly defined and most organizations simply will not qualify under it – so beware of providers who say you do.
2. Be wary of large upfront fees.
An organization that’s charging a large upfront fee for ERTC-related work may not have your organization’s best interests in mind.
3. Fees based on a percentage of the credit amount
This one is similar to large upfront fees. Think about this: A provider who’s claiming your business qualifies for $26,000 for every employee may not have your organization’s best interests in mind. The full credit is not common unless the gross receipts decline tests and other tests are met.
4. Advertised solicitations or unsolicited calls
Those banner ads following you around the internet or the cold calls flooding your phone usually aren’t the best way to find a qualified ERTC provider. These organizations are casting a broad net to find a few opportunities, without knowing your business (or possibly even what your state’s government shutdown orders were). If it feels fishy, steer clear.
5. How long has the company been operating?
Many of the ERTC mills we’re seeing only recently opened their doors to capitalize on the business of claiming the ERTC. Knowing how long they’ve been in business can help you protect your business – and begs the vital question of whether they’re still going to be operating in the event of an audit. If your claim is audited, you’ll have to find someone to represent your organization, and if the refund claim is found to be defective, you’ll have to return the funds.
6. Lack of due diligence
A provider who makes sweeping promises that your organization qualifies for the ERTC without doing any due diligence is a huge red flag, and one to be especially wary of. With wide variances in government orders, differences across industries, and multiple other factors affecting eligibility, make sure you’re working with a provider who takes time to dig into your unique business and situation.
7. Suggesting you have nothing to lose by submitting a claim
Because this just isn’t true. Submitting a claim on the off chance of qualifying could put your business or non-profit in a far worse cash position than never taking the credit in the first place. The IRS encourages taxpayers to take the credit if they qualify, but they’ve warned repeatedly about the risk of fraud and abuse, and stated the agency is on high alert.
What to do instead
Work with a reputable, established provider who digs in, asks questions, and evaluates your unique situation – and who knows the ERTC inside and out. If your ERTC claim gets audited, you need a provider who’s still going to be operating – and ready to provide audit defense.
If you’d like to know more, we have a large library of ERTC-related content, including a 21-minute master class with two of our top ERTC professionals. We also offer the ERTC QuickTest, which you can complete in less than five minutes. Your results are evaluated by our team of CPAs, and they’ll reach out to you with recommended next steps – even if the next step is not to apply for the credit. Contact us to set up a consultation with one of our ERTC pros.
