In recent years, a disconcerting trend has emerged: a cottage industry built around fraudulent tax schemes. You may have come across advertisements on television promoting the Employee Retention Credit (ERC), particularly if your company received PPP loans or managed to navigate the challenging pandemic period while retaining your employees. The promise of claiming credits for employee retention can be enticing, but it’s crucial to be aware of the potential risks and eligibility requirements associated with these programs. In this blog post, we will delve into the details of these schemes, explore how they operate, and discuss essential measures to safeguard your business from falling victim to these scams.

Fraudulent ERC Refund Companies

Unscrupulous companies have seized the opportunity to exploit business owners who may be unaware of the intricacies of tax regulations. These entities advertise their ability to help you secure ERC credits, often without the necessary licenses or certifications. While some charge upfront fees, others adopt a commission-based approach. They promise to obtain the credits on your behalf and request a percentage of the funds as their fee.

Understanding the Risks

Unfortunately, many business owners lack a comprehensive understanding of the eligibility criteria for these credits. It is not uncommon for companies to unintentionally overestimate their eligibility or be misled by false promises. To qualify for ERC, it is crucial to have consistently paid payroll to your employees throughout the designated period. Failure to meet the strict requirements can have severe consequences.

The Exploitative Tactics

These fraudulent companies capitalize on the ease of filing for tax credits and prey upon unsuspecting small businesses. They may fabricate information, inflating the number of employees retained and the amount of money claimed. By presenting the paperwork for you to sign or even submitting it directly, they secure their cut of the funds or demand their fee upfront.

The Perils of False Claims

The repercussions of participating in these fraudulent schemes can be devastating. Imagine filing for credits based on retaining seven employees, potentially yielding close to $200,000 at $26,000 per employee. Now, assume the scam company takes a 20% cut, amounting to $40,000. Months later, you receive a notice informing you that your claim has been audited, and the entire sum must be returned. Suddenly, you find yourself responsible for repaying the full amount, not just the portion you retained.

Safeguarding Your Business

The Internal Revenue Service (IRS) has issued warnings to businesses, urging them to exercise caution when approached by third-party promoters of tax credits. These promoters employ aggressive marketing tactics, often misleading individuals into believing they qualify for the credits. The Treasury Department initially relies on self-reporting, aiming to expedite the distribution of funds. However, if it later transpires that false information was provided, the money must be returned, and the perpetrators are long gone, leaving you to face the consequences.

Preventing Fraudulent Tax Filing

To protect your business from falling prey to these scams, it is vital to remain vigilant and take proactive measures:

Stay informed: Educate yourself about the eligibility criteria for tax credits, ensuring you have a clear understanding of the requirements and if your business meets them.

Thoroughly vet third-party providers: Before engaging with any company offering assistance in claiming tax credits, conduct thorough background checks. Look for reputable organizations with a track record of integrity and legitimacy.

Seek professional guidance: Consider consulting with trusted tax professionals or advisors who can provide expert guidance and ensure compliance with the regulations.

Exercise caution with personal information: Be cautious about sharing sensitive data with any company, especially those that raise suspicion. Scammers may exploit your private information for further illicit activities or even sell your information on the dark web.

As enticing as claiming tax credits may seem, it is crucial to approach such opportunities with caution. The rise of fraudulent tax filing schemes poses a significant threat to unsuspecting businesses. By understanding the risks, staying informed, and exercising due diligence in selecting trustworthy partners, you can protect your business from falling victim to these scams. Remember, preserving the integrity of your business and financial well-being should always be a top priority. Stay vigilant, stay informed, and safeguard your hard-earned success from those seeking to exploit the system.

Looking for answers?

Talk to an expert licensed private investigator.

Our team can help answer questions about your case, uncover the truth, and build a strong case. Schedule a consultation today.