This month, the IRS issued a warning to employers to be wary of third parties who are advising them to claim the Employee Retention Credit (ERC) when they may not truly qualify.

The ERC was established nearly three years ago as part of a larger COVID-19 relief package to help businesses get through the pandemic, but recently, the IRS has noticed community concern regarding the rise of non-CPA firms taking aggressive positions to claim ERC.

The companies often submit claims on behalf of businesses based on “supply chain disruptions” or other non-quantitative criteria, while charging large upfront fees or fees that are contingent on the refund amounts. These claims, if later audited by the IRS, may be disallowed which would require the money to be paid back along with possible penalties and interest.

You can visit to learn more about eligibility requirements and how to claim the Employee Retention Credit. Here is a brief overview of the main requirements:

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, or
  • 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.

We also recommend reviewing this resource by the Association of International Certified Professional Accountants (AICPA): Employee retention credit: Fact or fiction? It provides answers to common questions and various business scenarios as well as highlights some of the misconceptions surrounding the credit. To download it, click here.

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.

If you have questions about what ERC best practices and business strategies apply to your organization’s situation, please contact us. Our dedicated PPP and ERC teams are well-versed in the latest guidance and can help you achieve the best possible long-term benefit to your business.

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