How Can Individuals and Businesses Prevent ERTC Fraud? 

December 27, 2023
Dayes Law Firm

The worst aspects of human nature can surface when there’s a significant amount of money that is up for grabs. This is precisely what has happened with the Employee Retention Tax Credit (ERTC)

As a result of this tax incentive that rewarded businesses for keeping employees on payroll, unscrupulous “scammers” have engaged in aggressive marketing and outreach tactics, luring business owners with bold (and sometimes fake) promises of bountiful riches. Keep reading for tips about ERTC fraud prevention. 

A Brief ERTC Overview 

If you’re unaware of the specifics of the Employee Retention Tax Credit, we’ll provide a brief overview here. 

The ERTC is a tax credit that gives eligible small businesses a refund of up to $28,000 per employee for qualified wages. To claim the credit, a business must meet either one of the following two eligibility criteria requirements: 

  1. Experience a significant decline in revenue in 2020 and 2021 compared to 2019
  2. Be subject to a full or partial suspension due to a Covid-related government mandate 

The rules regarding ERTC eligibility have changed a handful of times since the introduction of the program, leading to even further confusion about the program’s requirements. Businesses can still file amended tax returns to get the full amount of the credit for which they are eligible. 

How ERTC Fraud Can Happen 

Almost immediately, predators started contacting businesses to “help” them claim their ERTC credit. Many business owners didn’t even know the ERTC actually existed, let alone the complex and confusing rules surrounding claiming funds. 

Scammers have taken advantage of the vulnerable financial position that struggling businesses had found themselves in due to the pandemic. They preyed on this position by promising excessive claims, even if the company wasn’t truly eligible for the funds. 

The combination of smooth talking and a desire to get a financial lifeline allowed these predators to take advantage of business owners by charging them excessive fees upfront, submitting erroneous claims, and even engaging in destructive identity theft of business owners and employees. 

Several IRS warnings have been issued about the penalties for filing fraudulent claims, and the agency has reminded preparers of their professional obligations of filing truthful claims that do not include any fake employee data, exaggerated wages, or claims for unqualified employees. 

Tips for Avoiding ERTC Fraud 

As the saying goes, “If something sounds too good to be true, it probably is.” A company might tell you that you are eligible for hundreds of thousands (or even millions) of dollars in ERTC funds. And while that might be true, don’t be blinded by dollar signs and fail to do your due diligence. 

We strongly recommend working only with reputable organizations with a successful track record of filing ERTC claims. The following tips can also help you avoid getting scammed or being on the hook for ERTC fraud: 

  • Avoid working with someone who demands a large upfront payment
  • Do not pay someone a percentage of your claim before you receive it
  • Do not provide any sensitive information to anyone before verifying their legitimacy
  • Exercise a healthy degree of suspicion of new companies that haven’t been around
  • Ask for proof of your eligibility criteria
  • Demand audit protection
  • Verify the company is registered with the IRS
  • Ask for actual proof of past successful ERTC claims

Questions About the ERTC? Contact Our Experienced Tax Team for Assistance 

Though it can feel like you’re living in the “Wild, Wild West” of tax firms clamoring for your business, there are still several ethical and experienced firms that can help you claim this lucrative credit. 

At Dayes Law Firm, we’ve worked with hundreds of business owners, filing more than $250 million in ERTC claims thus far. Give us a call at (800) 503-2000 or fill out our online form to schedule your free consultation.