What Are the Consequences of Falling Victim to an ERTC Scam?

November 30, 2023
Dayes Law Firm

The last thing any business owner wants to deal with are complications with their taxes – especially if it results in a dreaded IRS audit. But that’s exactly what might happen if a business owner falls victim to an Employee Retention Tax Credit (ERTC/ERC) scam. Indeed, there are several potential consequences to being scammed by a dishonest company or individual claiming to help you with your ERTC application. 

Tax Consequences of Falling Victim to an Employee Retention Tax Credit Scam

In mid-September, the IRS ordered an “immediate stop” to new Employee Retention Credit processing thanks to a surge of “questionable claims.” IRS Commissioner Danny Werfel ordered the immediate moratorium and said of the move, “The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in.”

Some business owners may not even know that their claims are “questionable” after trusting a third party to prepare their application for them. But every employer who’s interested in applying for the Employee Retention Tax Credit needs to be aware that there are people out there willing to scam them, and what the potential tax consequences are of being scammed in regard to your ERTC claim. 

To avoid being scammed, “Businesses should seek out a trusted tax professional who actually understands the complex ERC rules,” Werfel said in a press release in September. For those who do unfortunately fall victim to a scam, what are some of the tax consequences?

To begin with, employers who improperly claim the ERTC might have to pay it back “possibly with penalties and interest,” the IRS revealed. Their claim could result in an audit from the agency, which is a huge headache for any business owner. 

One of those penalties is an accuracy-related penalty. It is commonly assessed at 20 percent of the underpayment amount for cases of “negligence or disregard,” according to the IRS. Business owners could also face a 75-percent penalty if the IRS asserts civil fraud by the employer, Bloomberg Tax reported.

“In an egregious case, the IRS could assert criminal fraud, resulting in penalties and potential imprisonment,” the outlet warned. 

Working With Trusted Tax Professionals

As IRS Commissioner Werfel said, the best way to avoid being the victim of an Employee Retention Tax Credit scam is to work with a “trusted tax professional” on your application. Firms that have been involved in tax matters for years, like Dayes Law Firm, have plenty of evidence to back up their legitimacy, and lots of examples of successful cases to point to in order to reassure business owners seeking ERTC assistance from a credible professional. 

Dayes Law Firm and our partner firms have already helped hundreds of business owners file for the ERTC. To date, our team has assisted businesses in filing for over $250 million in these tax credit claims, and our clients have already received millions in ERTC refunds. We know the ins and outs of the Employee Retention Tax Credit, and we have a multitude of satisfied clients to prove it. 

Our team can help you claim the ERTC before deadlines to claim the credit arrive. Please give us a call at (800) 503-2000 to find out how you can get a free, no-obligation consultation to discuss any questions or concerns you may have about the ERTC. We look forward to hearing from you