IRS Renews Warning About Third Parties Promoting ERC Claims

The IRS renewed its warning that employers should be wary of third parties advising them to claim the employee retention credit (ERC) when the employer may not qualify to take the credit [IR-2023-40, 3-7-23]. The IRS originally issued this warning last October.

While reputable companies may help employers properly claim the ERC, the IRS said it has continued to see third parties aggressively promote ERC schemes on radio and online. These promoters are charging large upfront fees or fees contingent on the amount of the refund. These promoters also may not be informing employers that wage deductions claimed on the business’ federal income tax return must be reduced by the amount of the credit.

The Acting IRS Commissioner said the agency “is actively auditing and conducting criminal investigations related to these false claims.”

ERC Guidelines

The ERC was a refundable tax credit designed for employers that continued paying employees when the business sustained a full or partial suspension of operations due to orders from a governmental authority limiting commerce, travel, or group meetings due to COVID-19, or had significant declines in gross receipts from March 13, 2020, through the first three quarters of 2021 (or through the end of 2021 for a recovery startup business). The IRS is warning employers to carefully review the ERC guidelines before they try to claim the credit since promoters are continuing to push ineligible businesses to claim the credit.

To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!

Jyme Mariani, Esq., is Managing Editor of Payroll Currently and Senior Manager of Payroll Information Resources for the APA.