As the Wall Street Journal recently reported, while other pandemic-related assistance programs have expired, filing for the Employee Retention Credit (ERC) continues to be on the increase. Many employers are absolutely entitled to ERC claims, but the Internal Revenue Service (IRS) wants to make sure the money only goes to those who deserve it. And there's evidence that hasn't been happening.

Within months of the program's creation, the Department of Treasury's Inspector General had identified 11,096 suspicious returns claiming more than $2 trillion in credits.

Not surprisingly, the IRS now considers ERC claims to be a serious compliance issue.

IS THIS A THIRD-PARTY FILING?

New “ERC advisory firms” have sprung up, filing ERCs on behalf of companies. While some of these ERC companies are helping employers benefit from a tax credit they wouldn't otherwise know about, the IRS is warning companies that some of these advisory firms are taking advantage of the ERC and their clients. These “ERC mills” may be filing claims the employers aren't entitled to, and they're charging exorbitant fees for these questionable filings.

According to Bloomberg News, here are some red flags to watch out for:

• The ERC firm offers to file even when you don't run payroll
• The ERC firm is seeking a refund for your company that exceeds your total payroll
• The ERC firm is claiming that statements from the Centers for Disease Control constitute a government order for business closure (they don't)
• The ERC firm charges fees based on a percentage of the recovery rather than a flat fee

OF CONCERN:

Just as there are red flags for you to be aware of, the IRS has its own list of conditions that the agency's auditors are looking for.

For example, the IRS is looking hard at the company's calculations for lost revenue. One particular source of concern is if the basis for the claimed decline in revenue relates to supply chain issues. Declines in cash flow because of supply chain issues are very difficult to prove—because the impact may be too attenuated to quantify the actual harm.

HOW AN EXPERIENCED MARYLAND TAX ATTORNEY CAN HELP

If you've used an ERC firm, or if you have yet to submit an ERC claim, consider having a qualified tax attorney review your filings for accuracy. The recently passed infrastructure bill included a provision that extended the statute of limitations for ERC fraudulent claims, giving the IRS more time to review suspect claims.

If you have questions regarding employee retention credit or any other employee-related tax concerns, tax attorney Juda Gabaie specializes in helping employers with these issues. Contact Gabaie & Associates, LLC today by calling us at (410) 358-1300 or by sending us an email to schedule a free consultation at one of our Maryland offices. Call now to see how we can help your business.