The IRS has, once again, warned employers to review the Employee Retention Credit (ERC) guidelines carefully before trying to claim the credit, as third-party promoters continue to persuade ineligible people to file.

This refundable tax is for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021. Eligible employers can claim the ERC on an original or adjusted employment tax return for a period within those dates.

The IRS and tax professionals continue to see third parties aggressively promoting fraudulent ERC schemes on radio and online, the IRS reported.

"These companies are very aggressive at promoting themselves," Stephen Mankowski, tax chair of the National Conference of CPA Practitioners (NCCPAP), told Accounting Today. "In some cases they will lower their fee if the businessman pays them upfront. For example, they tell them that they qualify for a $100,000 credit. They will lower their normal fee from 15 percent to 10 percent if they are paid upfront. They will amend the Form 941, but the taxpayer—and their CPA—has to amend the corporate and/or the personal return to reflect the Form 941."

"While this is a legitimate credit that has provided a financial lifeline to millions of businesses, there continue to be promoters who aggressively mislead people and businesses into thinking they can claim these credits," said Acting IRS Commissioner Doug O'Donnell. "Anyone who is considering claiming this credit needs to carefully review the guidelines. If the tax professional they're using raises questions about the accuracy of the Employee Retention Credit claim, people should listen to their advice. The IRS is actively auditing and conducting criminal investigations related to these false claims. People need to think twice before claiming this."

To be eligible for the ERC, employers must have:

● sustained a full or partial suspension of operations due to orders from an appropriate governmental authorityPDF limiting commerce, travel or group meetings due to COVID-19 during 2020 or the first three quarters of 2021;

● experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021; or

● qualified as a recovery startup business for the third or fourth quarters of 2021.

“If the business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction,” the IRS stated, emphasizing that “[t]axpayers are always responsible for the information reported on their tax returns” and that “[i]mproperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.”

“As a reminder, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021," the IRS stated. "Additionally, for any quarter, eligible employers cannot claim the ERC on wages that were reported as payroll costs in obtaining [Paycheck Protection Program] loan forgiveness or that were used to claim certain other tax credits.”