Important IRS Notice: Employee Retention Scams on the Rise

Important IRS Notice: Employee Retention Scams on the Rise

• Jul 01, 2023

In a recent press release, the Internal Revenue Service (IRS) has issued a crucial warning to businesses and tax-exempt organizations regarding misleading employee retention scams. These scams have become increasingly prevalent, and the IRS aims to help businesses avoid falling victim to fraudulent claims and improper filings. By identifying warning signs and following simple steps, organizations can protect themselves from potential financial and legal consequences.

The Rise of Employee Retention Scams

The employee retention credit (ERC) is a valuable tax incentive provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Consolidated Appropriations Act of 2021. The purpose of the ERC is to support employers who have been significantly affected by the COVID-19 pandemic and encourage them to retain their employees.

However, unscrupulous individuals and organizations have taken advantage of the complexity surrounding the ERC, leading to an uptick in misleading employee retention scams. These scams exploit the desperation of struggling businesses and offer false promises of easy and substantial tax credits.

Identifying Warning Signs

To protect themselves from falling victim to fraudulent schemes, businesses and tax-exempt groups should be aware of several warning signs outlined by the IRS. These signs include:

1. Unsolicited offers: Beware of unsolicited emails, phone calls, or advertisements claiming to provide assistance in filing for the employee retention credit. Legitimate tax professionals and companies do not generally reach out to businesses without prior contact or a pre-existing relationship.
2. High-pressure tactics: Scammers often use high-pressure tactics to create a sense of urgency and convince businesses to act quickly. They may claim that the opportunity to claim the employee retention credit is time-limited, or offer expedited processing for a fee. Remember, rushing into a decision without proper due diligence increases the risk of falling victim to fraud.
3. Promises of inflated credits: Be cautious of claims that promise unusually large tax credits or refunds. If an offer seems too good to be true, it probably is. The employee retention credit has specific eligibility criteria, and the amount of credit is based on a percentage of qualified wages paid to employees.
4. Guaranteeing that you qualify: Similarly, no legitimate business will make promises regarding your eligibility for the ERC. Qualification is based on numerous factors, and a trustworthy tax professional will never promise that you qualify without first reviewing your tax situation in great detail.

If you notice any of these warning signs, please report the scam to the IRS right away, so they can help others to avoid falling victim to the scam.

Simple Steps to Avoid Improperly Filing Claims

The IRS also provides simple steps that businesses and tax-exempt groups can take to avoid improperly filing claims and becoming entangled in fraudulent schemes. These steps include:

1. Educate yourself: Familiarize yourself with the official IRS guidance on the employee retention credit. The IRS provides comprehensive information and resources on their website, including FAQs and specific eligibility requirements. By understanding the legitimate process, you can spot discrepancies and inconsistencies in fraudulent offers.
2. Work with reputable professionals: Engage the services of qualified tax professionals, such as certified public accountants (CPAs) or enrolled agents, who have a proven track record of expertise and integrity. Reliable professionals can help you navigate the complexities of the employee retention credit and ensure compliance with the IRS guidelines.
3. Verify claims and documentation: Scrutinize any claims made by third parties offering assistance with filing for the employee retention credit. Verify their credentials and perform background checks to ensure their legitimacy. Additionally, carefully review all documentation related to the claim, ensuring accuracy and completeness.
4. Be cautious with sensitive information: Exercise caution when sharing sensitive information, such as employee records or tax identification numbers, with unknown individuals or organizations. Protecting your data is crucial to preventing identity theft or misuse.

As businesses and tax-exempt groups strive to recover from the impact of the COVID-19 pandemic, it is essential to remain vigilant against misleading employee retention scams. By identifying warning signs and following the IRS's simple steps, organizations can protect themselves from falling victim to fraudulent schemes and improper filings. Educating oneself, working with reputable professionals, verifying claims and documentation, and exercising caution with sensitive information are key practices to avoid financial and legal consequences. Remember, staying informed and aware is the best defense against scams in the ever-evolving landscape of tax incentives and credits.

If you need assistance with settling past tax debt or have other questions about the taxes you owe, contact the IRS Advocates today. We specialize in helping individuals establish repayment plans and debt settlement plans with the IRS, whether your debt is a result of falling victim to a scam, or simply being unable to pay your taxes. Call now to see how we can help you with your tax debt.