The Employee Retention Credit (ERC) is a COVID response program that was rolled out to employers as it relates to 2020 and 2021. Initially, it took a back seat to the more immediate Paycheck Protection Program (PPP) but due to some Congressional tweaks it became a far more attractive program, at least for some employers.
Unsurprisingly, the program has been abused and incredible amounts of fraud have been perpetuated in the name of “Free money”. A whole industry of providers has popped up over the last 18 months or so, ostensibly specializing in the program.
Of course, their specialization came at a hefty price in the form of massive fees often as a percentage of the credit recovered. You’ve no doubt heard the commercials on the radio or seen the advertisements on TV. They were positively ubiquitous through the summer and into the fall. And then just like that the ads stopped. Why?
Well, after months and months of warnings from CPA groups and others the IRS finally pumped the brakes on the ERC programs. On September 14, 2023 the IRS announced the immediate suspension of new claims through 12/31/23. Essentially the service wanted more time to review and process claims already in the pipeline.
Basically the ERC providers were stretching and twisting the qualification standards to the point where virtually any employer could qualify. In fact, a business needed to meet one of TWO tests in order to qualify:
- Full or partial suspension of business operations due to governmental mandate OR
- Reductions in business gross receipts
That’s it. If a business did not meet those requirements they should not have filed for the ERC Credit. Unfortunately, many did to the tune of massive credit refunds, often approaching or exceeding 7 figures.
To be sure, many businesses qualified based on the standards described above. Our firm tested for our clients about a year ago and identified fewer than 10 that met the standards. We prepared and filed those claims along with them. We advised several clients NOT to pursue this program in cases where they did not meet the standards.
But other businesses did not go through the appropriate due diligence or were sweet talked by these “ERC Mills” that were churning out non qualifying credit claims. The penalties should these claims be audited could be SUBSTANTIAL.
Fortunately, the IRS is developing a program to retract and pay back fraudulent ERC claims. The hope is that it will be something of an amnesty program. My guess is that some of these credit providers will face SERIOUS repercussions that may include jail time.
If you or your business, filed for ERC and did NOT use our firm to assist you, please let us know. We will be happy to advise you on your best course of action moving forward.
Unfortunately, if we later discover that an ERC claim was made inappropriately we will likely have to disengage our service to those businesses. Please contact us if you have any questions about this or any claim that you or your business may have made.