The Employee Retention Tax Credit (ERC) is the last remaining pandemic era federal tax incentive available to eligible Chicago companies. Although the program is no longer in effect, business taxpayers have until 2024 to claim eligible 2020 activities and 2025 to claim eligible 2021 activities. The extended timeframe has been useful for those companies which have yet to make a claim. However, it has also given rise to businesses that focus only on ERC claims that have made exaggerated or inaccurate claims about a taxpayer’s ability to claim ERC. In fact, the marketing of these companies has become so aggressive that the IRS has issued several alerts to protect taxpayers. In late May, another alert was issued cautioning taxpayers about the aggressive tactics used by these companies. The alert contains useful information about the approaches used and how companies can protect themselves. To help clients, prospects, and others, Selden Fox has provided a summary of the key details below.
Aggressive Marketing Tactics
The IRS has been closely tracking the tactics used by these companies and has identified commonalities used in their marketing, including:
- Use of unsolicited telemarketing or other advertisements promising an easy application process.
- Statements the company can determine eligibility within minutes. The ERC is a complex federal tax incentive that requires a qualified tax professional to carefully review activities, payments, and more to determine eligibility. To suggest that applying for the credit is “easy” is simply not true.
- Large upfront fees to claim the credit. This is a big red flag since simply applying for the credit does not mean the application will be accepted. In addition, the payment of a claim does not necessarily mean the IRS agrees with the claim. It is important to remember, the IRS can conduct an assessment for several years after the claim has been paid.
- Statements that a taxpayer already qualifies without conducting any discussion or inquiries about the taxpayer’s pandemic operations or tax situation. The ERC is not available to every company that was in operation during the pandemic. As such, it is essential to ensure eligibility criteria are met prior to working with a provider.
- It has also been found that some companies are encouraging taxpayers to file a claim, even when eligibility is unclear because there is nothing to lose. This claim is false. Not only could a taxpayer lose the initial preparation fees, but if the credit is determined to have been inaccurately paid there can be other consequences. The credit amount will have to be refunded and the taxpayer may be subject to penalties and interest.
- Some are also using the credit to steal a taxpayer’s personally identifiable information (PII) or illegally take a cut of the credit for themselves.
ERC Eligibility Criteria
To avoid being victimized by these promoters, it is important to be aware of the eligibility criteria. Remember, the ERC is only available to eligible employers that paid qualifying wages to some, or all employees, after March 12, 2020, and before January 1, 2022. The amount of the credit depends on when the business impact occurred. Businesses and organizations that typically qualify would need to meet the following criteria:
- Were subject to forced business closure by a local, state, or federal government order during 2020, or the first three calendar quarters of 2021, or
- Experienced the required decline in gross receipts during the 2020 or 2021 eligibility period, or
- Qualify as a recovery startup business for the third or fourth quarters of 2021.
Finally, it is important to note there are limitations to consider. For example, a business taxpayer cannot claim the ERC on wages that were reported as payroll on a Paycheck Protection Program (PPP) loan forgiveness application. In addition, payroll costs incurred in connection with the Shuttered Venue Operators Grant or Restaurant Revitalization Program also do not qualify.
The Employee Retention Credit is a powerful tax savings tool for eligible Chicago companies. Unfortunately, there are many companies which are improperly promoting the credit. To avoid such issues, it is essential to consult with a qualified tax advisor to guide you through the process. If you have questions about the information outlined above or need assistance with a tax or audit issue, Selden Fox can help. For additional information call 630.954.1400 or click here to contact us. We look forward to speaking with you soon.