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Pay Attention to Red Flags from Shady Promoters to Avoid ERC Fraud

ERC fraud – especially by aggressive operators who promise innocent companies big returns – has hit epidemic proportions. As a result, the IRS announced this week that the agency won’t be processing new applications until at least the end of the year.

The IRS says that in addition to the moratorium on new applications, it’s slowing the pace of processing pending applications. Previously the agency aimed to process returns within 90 days. Now, a more intensive investigation of claims is expanding that to 180 days. If an application seems questionable, the process could take even longer.

That mean that if you file an application now, you may not have it processed for the next nine months.

What Is the ERC?

The federal government created the Employee Retention Credit (ERC) as a response to difficult economic conditions created by the Covid-19 pandemic. Congress designed the credit to refund payroll taxes to companies who kept paying employees when government restrictions drove down gross receipts. The IRS has processed 3.6 million claims so far.

ERC Fraud Costing Billions

The IRS Criminal Investigation division has started investigations involving $2.8 billion in ERC fraud so far. Some of these investigations have already resulted in federal charges and some prison sentences. The agency is reviewing applications for compliance issues.

ERC Promoters Raise Red Flags

The IRS is upping its audits of applications, including criminal investigations. They are responding to a large number of promoters and businesses who use high-pressure sales pitches. As well, a number of these fly-by-night companies are making false claims on whether businesses qualify for the credit, saying they are guaranteed to be accepted.

The promoters also frequently omit the fact that reducing the payroll taxes will lower the expense deduction on taxes returns. In reality, a company receiving the ERC will have to file amended returns, and pay more tax.

Honest small business owners, who fall for these hucksters’ tactics, can end up worse off than if they’d never applied. If the IRS finds that you weren’t qualified to receive the ERC, small businesses will have to pay back the money received, plus penalties and interest.

Talk to Your Accountant

The IRS recommends that you talk to your well-established and trusted accountant (that’s us!) to see if you truly do qualify.


This IRS article details warning signs of Employee Retention Credit scams.

This is a quick checklist to see if you really are eligible for the ERC.

Lastly, you can learn more about our services here!