Are you being relentlessly solicited for ERC? Here’s everything that you should know.
The employee retention credit is extremely complicated. I’ve said this so many times in the past 2+ years, but ERC is the truly most complicated thing I’ve ever worked on, and I have been preparing tax returns by hand since before my 16th birthday.
I’m proud of the work our team has done helping clients get ERC. We have helped so many of our clients understand ERC and claim what they qualify for. We’ve studied the rules, we’ve discussed the rules, we’ve come up with reasonable positions when uncertainty existed, we’ve taken a relatively cautious approach to ERC. We are CPAs and with that comes the AICPA’s ethical standards for tax practice and the IRS’s ethical standards that help guide us towards doing the right thing. We want to do ERC right, so we spent thousands of hours trying to learn about it before we helped even our first client in April 2021 file an ERC claim. We’re proud of our work.
There are other ERC providers that don’t hold themselves to the same standard and the IRS has certainly noticed.
All those solicitations you are getting are most likely from a company that didn’t exist before ERC. The company was created for the sole purpose of charging high fees and processing as many ERC claims as they can. They are more interested in high volume and high fees than high quality work. If they are not setup as CPA firms then the AICPA and IRS standards wouldn’t apply to them. Do you want to be working with a company setup specifically to avoid the ethical rules of the AICPA and IRS?
Many of these companies pushing the ERC solicitations are doing very poor quality or fraudulent work because they are motivated by one time profit rather than a desire to have a long term relationship with a client. It’s a cash grab scheme for them, and they are getting very good at soliciting people because the PPP loan information is publicly available. Some of the solicitations look like IRS notices, some of them look like they have already calculated your ERC and you just need to claim it. They are very clever solicitations, but that’s all they are, it’s just marketing material. The ERC rules are complex and they are ignoring many of them in pursuit of higher one time fees which can put your business in jeopardy.
Let’s walk through the common red flags you should be looking for:
- If the ERC company has solicited you multiple times or sent you materials that make it look like you are prequalified, or make it look like an IRS notice that is a red flag. Reputable firms that do ERC work don’t send out misleading solicitations.
- If the ERC company says that every business in the country qualifies. This is clearly not the case. Some businesses do qualify, often times there are businesses that are unaware they will qualify that do, but to say that every business in the country qualifies is just lying.
- If the ERC company charges an up front fee that should be a red flag for you. It’s a sign they don’t intend to be around in 1, 2, 3 years when the IRS comes to audit these claims.
- If the ERC company charges a flat percentage of the credit as their fee, the 15% or 20% or 25% contingent fee is a sign they are motivated only by increasing the fee.
- If the ERC company has a name like ERC Specialists or ERC.com it’s clear the company was setup with the sole purpose of processing ERC claims, not having long term relationships with business owners. Working with a company like that should be a red flag.
- If the ERC company refuses to prepare and sign the 941X that should be a giant red flag for you. They don’t want the IRS to know it was them who worked on the study, and forcing someone else to prepare the 941X obscures their identity to the IRS.
- If you can’t find any record of the ERC company existing prior to 2021 that’s a sign they are unqualified and created to capture one time profit.
- If the ERC company has a process that promises to take a week start to finish that’s a giant red flag. ERC is complicated and it shouldn’t be possible to finish a legitimate study that quicky.
- If the ERC company doesn’t demand to see your PPP forgiveness application that’s a red flag. They are doing the calculations incorrectly if they are not taking into account the information on the Form 3508 PPP forgiveness application.
- If the ERC company says that employees or customers wearing a mask qualifies the business for ERC that’s a red flag. The IRS guidance is clear that a mask is a nominal impact on the business and does not qualify you for ERC.
- If the founder of the ERC company is a real estate investor, or salesperson, a banker, or a serial entrepreneur they are not very likely to be tax experts and you aren’t going to want them defending your ERC claim in the case of an IRS audit. Any company doing ERC work that isn’t founded by and run by experienced tax professionals should be a red flag.
- If the ERC company says that the rules for ERC have changed recently. The IRS has not issued meaningful guidance since August 2021. If they are claiming the rules changed in 2022 or in 2023 that’s just not true.