Cassidy Jakovickas.

An August report from the Treasury Inspector General for Tax Administration (TIGTA) stated that the IRS had identified 11,000 returns that claimed over $2 trillion through the Employee Retention Credit — even though the taxpayers may have been ineligible to receive it. The ERC has made headlines since being introduced in 2020 as part of financial relief measures for COVID-impacted employers. But, while ERC is a great financial opportunity for eligible businesses and nonprofits, its lucrative nature has also made it a target for shysters and criminals interested in a fast buck.

Preying on uninformed taxpayers, these criminals twist and misrepresent legitimate ERC facts to persuade people to claim the ERC — whether or not they’re eligible — so they can receive a hefty percentage of their client’s ERC check. If you don’t want this to happen to you, keep reading.

Don’t assume value matches price

We all know that it’s best to choose premium services if we want premium results. But, when it comes to ERC fees, high fees don’t guarantee you the best results or value. Many times, an ERC professional will charge nominal “ERC calculation fees” or inflate your refund to increase their percentage of your check.

Rather than deciding on price alone, choose an ERC professional who takes time to ensure the accuracy and legitimacy of their clients’ ERC claims. If you’re going to choose someone to help you with the ERC, it’s best to spend extra time now picking a qualified professional than spending months later cleaning up the mess made by an ERC shyster.

Nobody is “pre-qualified” for the ERC

From voicemails to email blasts to radio ads, criminals are investing a lot of time and money in persuading people that they’re pre-qualified to receive the ERC tax credit. Sometimes, they’ll even promise them a specific amount before ever looking at the client’s financials!

The truth is, nobody is eligible for the ERC until a qualified professional has looked at their circumstances and found eligibility through either the gross receipts test or the ERC suspension test.

Can they explain how you qualify for the ERC?

Many times, ERC fraudsters will assure you that they’ll help you become eligible, even if other accountants or tax professionals have told you that you’re ineligible. But, this updated eligibility usually skimps on the details regarding how exactly you qualify for the ERC and doesn’t provide any explanation as to why their results differed from the previous professional’s opinion.

Whether you qualified or didn’t, ask your ERC professional how they arrived at their decision. If they try to confuse you with legal terminology or say, “It’s complicated,” then take a look at, “What Is the Employee Retention Credit,” where I describe official ERC guidance, explain the gross revenue test, and explore the nuances of the oft-misunderstood suspension test.

Prepare for an ERC audit, keep your documentation

The ERC is a legitimate tax opportunity but don’t become so blinded by the potentially huge check that you choose someone more interested in getting a check than validating your ERC eligibility. True professionals take their reputation seriously and will only say you are ERC-eligible if they can prove it to you and the IRS with documentation or a reasonable interpretation of official IRS guidance.

As the IRS begins to focus more on ERC audits, it’s best to prepare for the incoming wave of audits by ensuring you can substantiate your ERC amounts. Hang on to your financial statements so you can justify gross receipt claims or, if you qualified under the ERC suspension test, keep copies of government orders that mandated your qualifying shutdown. I’d recommend following up with the professional who helped you claim the ERC so they can help you gather this information if you don’t have it on hand.

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Cassidy Jakovickas, CPA, is president and CEO of MBS Accountancy Corp. in Downtown Fresno.