FINANCE
STOPPING THE SCAM: IRS CRACKING DOWN ON FALSE ERC CLAIMS By Tricia Petteys, Payroll Vault Franchising, LLC
Franchisors and franchisees alike need to stay on top of recent changes that could affect their bottom line — namely, receiving Employee Retention Credits (ERC), aka COVID credit.
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he IRS has made several big announcements recently. First, in September, it enacted a moratorium for processing new claims, due to a huge backlog and rampant fraudulent filings. In October, they announced a claim withdrawal process for business owners who may have been the target of a credit filing scam or who have doubts after filing that they actually qualify for the tax credit. As chief operating officer and co-founder of a payroll service company that specializes in serving small businesses, we have successfully processed tens of millions of dollars of ERC credits for clients. But we also know many small business owners who were convinced to file for ERC by heavy-handed marketing used by questionable tax filing companies. It’s more important now than ever for business owners to know the facts about ERC qualifications, how to spot a filing scam attempt, and how to withdraw a filing if they think they’ve made a mistake.
36 FRANCHISING WORLD / December 2023
ERC Situation Overview
To recap, ERC is a special tax credit offered to employers who paid wages between March 13, 2020, and December 31, 2021, during the COVID-19 pandemic shutdown. To qualify, an employer must have experienced one of the following during this time period: • Sustained a full or partial suspension of operations due to an order from an appropriate governmental authority limiting commerce, travel, or group meetings because of COVID-19 during 2020 or the first three quarters of 2021. • Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021. • Qualified as a recovery startup business for the third or fourth quarters of 2021. Additional information on ERC qualifications and how to file a claim are available on the IRS website. Due to the large number of claims filed, the IRS announced on September 14 that it had a backlog of about 600,000 claims, and it was seeing an alarming number of fraudulent claims. To address the problem, the IRS put a moratorium on processing new claims, extending the original 90-day waiting period for valid claims to 180 days. Deadlines for filing and processing remain unchanged, however, which means business owners must be vigilant to avoid scams.
Spotting a Scam
Business owners have a limited time to file for ERC. According to the IRS, the filing deadline for the 2020 tax period is April 15, 2024, and the deadline for the 2021 tax period is April 15, 2025. Because of this shrinking window, unscrupulous filing companies will pressure business owners to file quickly and without doing their due diligence to ensure they’re