The IRS has renewed an alert to businesses and tax-exempt groups to be wary of companies and individuals promoting their eligibility for the Employee Retention Credit (ERC).

The ERC is a refundable tax credit for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or that had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021, according to the IRS. The agency said that it and tax professionals have seen a “barrage” of “aggressive promoters are wildly misrepresenting and exaggerating who can qualify for the credits.”

The solicitations take the form of “aggressive broadcast advertising, direct mail solicitations and online promotions,” it said. About 9,000 advertisements promoting application services for this credit have been airing on national cable and broadcast television networks, according to Vivvix CMAG, an ad tracking firm cited by The New York Times.

One Utah accounting firm submitted more than 1,000 fraudulent tax forms to the IRS on behalf of businesses trying to claim the credit before it shut down in February, the Times reported.

“These are Johnny-come-latelies, showing up and they’re pushing this product, pushing this activity in a way that is unethical,” Douglas O’Donnell, the deputy commissioner of services and enforcement at the IRS, told The Times. “It is drawing businesses into a trap, that they will then be claiming a credit that they are not entitled to.”

"The aggressive marketing of the Employee Retention Credit continues preying on innocent businesses and others," IRS Commissioner Daniel Werfel said in a statement. "Aggressive promoters present wildly misleading claims about this credit. They can pocket handsome fees while leaving those claiming the credit at risk of having the claims denied or facing scenarios where they need to repay the credit."

In its alert, the IRS highlighted warning signs of aggressive ERC marketing:

● Unsolicited calls or advertisements mentioning an "easy application process;"
● Statements that the promoter or company can determine ERC eligibility within minutes;
● Large upfront fees to claim the credit;
● Fees based on a percentage of the refund amount of Employee Retention Credit claimed. This is a similar warning sign for average taxpayers, who should always avoid a tax preparer basing their fee on the size of the refund;
● Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group's tax situation. In reality, the Employee Retention Credit is a complex credit that requires careful review before applying; and
● The IRS also sees wildly aggressive suggestions from marketers urging businesses to submit the claim because there is nothing to lose. In reality, those improperly receiving the credit could have to repay the credit – along with substantial interest and penalties.

The IRS provided a list of how these promoters lure their victims:

● Aggressive marketing. This can be seen in countless places, including radio, television and online as well as phone calls and text messages;
● Direct mailing. Some ERC mills are sending out fake letters to taxpayers from nonexistent groups such as the "Department of Employee Retention Credit." These letters can be made to look like official IRS correspondence or an official government mailing with language urging immediate action;
● Leaving out key details. Third-party promoters of the ERC often don't accurately explain eligibility requirements or how the credit is computed. They may make broad arguments suggesting that all employers are eligible without evaluating an employer's individual circumstances; and
● Payroll Protection Program participation. In addition, many of these promoters don't tell employers that they can't claim the ERC on wages that were reported as payroll costs if they obtained Paycheck Protection Program loan forgiveness.

To protect a business, the IRS advises the following:

● Work with a trusted tax professional. Eligible employers who need help claiming the credit should work with a trusted tax professional; the IRS urges people not to rely on the advice of those soliciting these credits. Promoters who are marketing this ultimately have a vested interest in making money; in many cases they are not looking out for the best interests of those applying;
● Don't apply unless you believe you are legitimately qualified for this credit. Details about the credit are available on IRS.gov, and again a trusted tax professional – not someone promoting the credit—can provide critical professional advice on the ERC; and
● To report ERC abuse, submit Form 14242, Report Suspected Abusive Tax Promotions or Preparers. People should mail or fax a completed Form 14242, Report Suspected Abusive Tax Promotions or PreparersPDF, and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations.