Is ERC Legit? Your Ultimate Guide To Avoid Fraudulent And Scams

The Employee Retention Credit (ERC) is a legitimate and beneficial program the United States government introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Aimed at helping businesses that experienced a significant decline in gross receipts due to the COVID-19 pandemic, the ERC provides a fully refundable tax credit for eligible employers equal to 50 percent of qualified wages, a significant monetary relief that has been a lifeline for many businesses during these trying times.

However, the legitimacy of the ERC program should keep our eyes open to the fact that there are fraudulent schemes designed to exploit it. Like any other financial relief program, the ERC has attracted the attention of fraudsters looking to profit off unsuspecting businesses. Therefore, while the Employee Retention Credit is undeniably legitimate, companies must stay informed and vigilant to avoid scams. Understanding the authentic guidelines of the ERC and being wary of false claims can help businesses reap the benefits of the Employee Retention Credit without falling into fraudulent traps.

Spotting Fraudulent Employee Retention Credit Claims

There is a growing concern over fraudulent ERC claims that appear entirely legitimate at first glance. Such fraudulent claims often involve:

• Erroneous information about eligibility criteria.
• Misrepresenting the credit's benefits.
• False claims about immediate accessibility of funds.

Scammers often disguise themselves as authoritative figures or institutions, using convincing language and professional-looking documents to lure businesses into their trap. They might promise expedited approvals or higher credit amounts, which exceed what the actual ERC tax credit program offers. The ERC scammers may also insist on upfront payment for their services,' which is a clear red flag since the existing Employee Retention Credit program does not involve such fees.

Another common fraudulent tactic involves identity theft. The scammers may request sensitive business information, such as Employer Identification Numbers (EIN), under the guise of processing the ERC claim. Businesses should be wary of any such unsolicited requests.

Businesses must understand that the Internal Revenue Service (IRS) is the only authorized institution to process ERC claims. Any claims made outside the IRS's official channels are potentially fraudulent. Therefore, businesses must verify any information regarding the ERC claim with the official Internal Revenue Service (IRS) guidelines.

In conclusion, while the ERC tax credit program is a legitimate source of financial relief, businesses must educate themselves about typical fraudulent schemes to protect themselves from scams.

Common Types of ERC Scams

The landscape of ERC scams is diverse and ever-evolving, with fraudsters inventing new strategies to deceive unsuspecting businesses. Below are just some of them:

Phishing Scams

One common type of Employee Retention Credit scam is phishing, where fraudsters pose as IRS officials and request sensitive information via email or phone. They might ask for personal or business-related data to 'process' the ERC credit, but they use this information for identity theft.

Advance Fee Fraud

In this type of scam, fraudsters ask businesses to pay a fee upfront to 'expedite' their ERC claim. They often promise a substantial refund upon payment. However, the IRS does not require any upfront cost for the ERC.

Overstated Refund Claims

Here, scammers claim to help businesses get larger refunds than they are eligible for under the ERC program. They might use false information or inflated figures to convince businesses of their 'special' service.

Fraudulent Tax Preparers

Some scammers pose as tax preparers offering to file ERC refunds on behalf of businesses, only to disappear with the refund or steal business-related information. Engaging only reputable tax preparers or directly working with the IRS is crucial.

Fake Websites

Lastly, fake websites mimicking the official IRS site have been used to trick businesses into submitting their ERC claims and personal information. Using only the official IRS website for any ERC-related processes is essential.

Red Flags of Employee Retention Credit Fraud

Below are some of the red flags to look out for in ERC fraud:

Unexpected Communication

One critical red flag is unexpected communication from someone claiming to be from the IRS or another authoritative entity. The IRS typically doesn't initiate contact with taxpayers via email, text messages, or social media channels to request personal or financial information.

High-Pressure Tactics

Fraudsters may use high-pressure tactics, insisting on immediate action or payment. They may use threats of legal action or loss of benefits. This is a clear sign of fraudulent activity, as the IRS follows a formal process when seeking payments.

Unsolicited Job Offers

Be wary of unsolicited job offers to process ERC claims. Fraudsters may try to recruit unsuspecting businesses or individuals to be part of the ERC scam, often under the guise of a work-from-home job opportunity.

Changes in Banking Details

Scammers might request a change of banking details at the last minute before the tax credit is due to be paid. This tactic is often used to divert the funds to their account.

Offer of Free Money

Any communication that promises "free money" in the form of inflated credits or refunds should raise suspicion. The IRS determines the amount of the credit based on specific criteria, and these would not typically vary widely.

No Due Diligence

Legitimate advisors will conduct due diligence, requesting documents to verify ERC eligibility. If a provider is willing to file your claim without asking for adequate documentation, this might be a scam.

How to Avoid ERC Scams?

In the face of increasing Employee Retention Credit scams, businesses must equip themselves with the proper knowledge and strategies to avoid these deceptive practices. Let's explore some practical measures that can be employed to prevent falling victim to Employee Retention Credit scams.

Verify the Source

Always verify the source of any communication related to the ERC credit. The IRS typically communicates via postal mail, not via email or phone calls. Any unsolicited contact from someone claiming to be from the IRS should be treated with skepticism.

Use Official Channels

Always use official channels to seek information about the ERC refund or credit application. The IRS website is the most reliable source of information. Avoid clicking on links in emails or texts that claim to direct you to the IRS site.

Protect Your Information

Be cautious about sharing sensitive business information, such as your EIN or banking details. Scammers can use this information to commit identity theft or fraud. Only provide this information through secure, official channels.

Seek Professional Help

If you need clarification on the ERC or the application process, it may be beneficial to seek help from trusted tax professionals. They can provide guidance and help you avoid potential scams.

Report Suspicious Activity

If you encounter a potential scam, report it to the IRS. They can investigate the issue and take action to protect other businesses from falling victim to the same fraud.

What to Do If You Have Been Scammed

Taking immediate action is essential if you suspect you have fallen victim to an ERC scam.

Contact the IRS

First, contact the IRS directly. You can report the scam to the Treasury Inspector General for Tax Administration (TIGTA) through their website or by calling 1-800-366-4484.

Report to Federal Trade Commission (FTC)

Next, report the scam to the Federal Trade Commission (FTC) using the FTC Complaint Assistant on FTC.gov. Include any related emails, text messages, or other communication in your report.

Contact Your Financial Institution

If the scam involved any financial transactions or your bank information, contact your bank or credit card company immediately. They can guide you on the following steps to protect your account.

Change Your Information

Consider changing your account numbers and passwords if your personal identifiable (PII) or business information is compromised. Also, closely monitor your accounts for any suspicious activity.

Consult a Professional

In some cases, you may need to consult with tax professionals or attorneys to address the possible consequences of the scam, notably if false information was filed on your behalf.

Remember that falling for a scam doesn't reflect your business acumen; these schemes are highly sophisticated and designed to deceive. You can mitigate the damage and protect your business by acting quickly and proactively.

Ensuring Confidence When Filing for ERC

To ensure you are filing for your Employee Retention Credit (ERC) with confidence, there are several steps you can take:

1. Understand the Criteria: Become familiar with the IRS's guidelines for ERC eligibility.
2. Maintain Accurate Records: Keep detailed and accurate records of your business operations, especially those relevant to the Employee Retention Credits, such as payroll records and employee headcount. These records will be crucial when you are filing for the credit.
3. Utilize IRS Tools and Resources: The IRS offers a variety of tools and resources on its official website to assist businesses with the ERC application process. These resources include FAQs, guides, and calculators to help ensure you accurately determine and claim your credits.
4. Attend Informational Webinars/Workshops: The IRS and other professional tax bodies often hold webinars and workshops to educate business owners about tax credits, such as the ERC. Attending these can provide you with up-to-date information and allow you to ask questions about the application process.
5. Engage a Reputable ERC Advisor: Consider engaging a reputable advisor specializing in ERC claims to guide you. They can provide expert advice and insight, ensuring your claim is accurate and compliant with IRS guidelines.
6. Stay Informed About Updates: The rules for tax credits like the ERC may be updated from time to time. Stay informed about these changes by subscribing to tax news updates from reliable sources.

By ensuring you understand the process, maintaining accurate records, and leveraging available resources, you can confidently file your ERC refund, knowing that you are minimizing the risk of errors and potential issues with the IRS.

To avoid ERC fraud, ask for help from the most trusted ERC firm, the ERTC Express.