USA's IRS tells taxpayers not to listen to "promoters" of a tax credit scheme.
The USA's Inland Revenue Service has issued a further warning about a tax credit scheme that is being heavily promoted by companies offering intermediary services but which can easily result in a liability and penalty. In October 2022, the IRS issued a warning telling "employers to be wary of third parties who are advising them to claim the Employee Retention Credit (ERC) when they may not qualify. Some third parties are taking improper positions related to taxpayer eligibility for and computation of the credit."
The IRS warned "These third parties often charge large upfront fees or a fee that is contingent on the amount of the refund and may not inform taxpayers that wage deductions claimed on the business' federal income tax return must be reduced by the amount of the credit."
So, basically, form fillers get paid for making the claim but often claims are not matched by a corresponding entry in the employers' tax returns.
At first sight, this looks as if the IRS is giving money with one hand and taking it back with the other but that's not the case. Employers enter wages and salaries paid into their tax returns in order to claim tax relief. Under the Employee Retention Credit, pay is subsidised. So to claim the whole of the pay for tax relief is, prima facie, fraudulent.
So the amount received in credit must be set off against the full, normal, payment made by the employer.
But clearly many people, often with the help of those advertising that they can help obtain the Employment Retention Credit, aren't making the set off. And it's got worse: "there continue to be attempts to claim the ERC during the 2023 tax filing season. Tax professionals note they continue to be pressured by people wanting to claim credits improperly" says the IRS in a second notice this week.
Acting IRS Commissioner Doug O’Donnell could not be more clear: "“While this is a legitimate credit that has provided a financial lifeline to millions of businesses, there continue to be promoters who aggressively mislead people and businesses into thinking they can claim these credits. “Anyone who is considering claiming this credit needs to carefully review the guidelines. If the tax professional they’re using raises questions about the accuracy of the Employee Retention Credit claim, people should listen to their advice. The IRS is actively auditing and conducting criminal investigations related to these false claims. People need to think twice before claiming this.”
So, listen to your accountant, read the official IRS material. Don't listen to TV and Facebook ads and posts.
