IRS Warns of Third-Party Employee Retention Credit Claims

The Internal Revenue Service is warning employers to be wary of third parties who are advising them to claim the Employee Retention Credit (ERC) when they may not qualify. Some third parties are taking improper positions related to taxpayer eligibility for and computation of the credit.

These third parties often charge large upfront fees or a fee that is contingent on the amount of the refund and may not inform taxpayers that wage deductions claimed on the business's federal income tax return must be reduced by the amount of the credit.

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.

Businesses are encouraged to be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.

What is the ERC?

The ERC is a refundable tax credit designed for businesses that continued paying employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020, to December 31, 2021. Eligible taxpayers can claim the ERC on an original or amended employment tax return for a period within those dates.

To be eligible for the ERC, employers must have:

• sustained a full or partial suspension of operations due to orders from an appropriate governmental authority 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.

As a reminder, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021. Additionally, for any quarter, eligible employers cannot claim the ERC on wages that were reported as payroll costs in obtaining PPP loan forgiveness or that were used to claim certain other tax credits.

To report tax-related illegal activities relating to ERC claims, submit Form 3949-A, Information Referral. You should also report instances of fraud and IRS-related phishing attempts to the Treasury Inspector General for Tax Administration at 800-366-4484.

How can we help?

Our focus is to encourage employers to work with us on any aspect of the Employee Retention Tax Credit process. Our clients have been extremely grateful that we advise, eliminate risk, and provide an urgently needed service. There are countless conditions, contingencies, and stipulations that require the service of a knowledgeable and experienced CPA. That’s why Brinker Simpson & Company, following the initiation of employee retention credits, created a team of professional ERC consulting CPAs dedicated specifically to facilitating businesses’ applications.

Our team of professionals will

• Work with you to determine and document eligibility to claim the credit.
• Analyze your situation to maximize the benefit of PPP1/PPP2 loan forgiveness and the ERC.
• Assist you in retroactively claiming the credit.
• Assist you in evaluating "large employer" status. If your business is considered a large employer, we will work with you to utilize the credit within the guidelines.
• Prepare calculations to determine the eligible payroll costs for ERC, and provide amounts for your payroll processor to claim the credits on quarterly payroll returns, including preparing amended payroll tax returns if the payroll processor is unable to handle them.
• Advise you in connection with the Employee Retention Tax Credit process.

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