Brand Story – The IRS is making changes to how they process the Employee Retention Credit. Will it impact your business?
At Dominguez Accounting, we pride ourselves on keeping local business owners & non-profit leaders up to date on any changes in legislation, or important updates from the IRS, that may be impactful on their small business.
The recent announcement from the IRS, and the changes they are making to the way they process Employee Retention Credit filings moving forward, has caused a lot of confusion amongst business owners and non-profit leaders, which is why we want to offer clarification on the changes and how they might affect your business.
The Employee Retention Credit is a retroactive tax credit for small business owners with 1-500 W-2 employees, whose business was impacted by closures and had an interruption in business during 2020-2021. Eligible businesses could receive a refund of up to $26,000 in payroll and payroll taxes for each W-2 employee, which can add up to a lot of money.
As with anything involving money, there have been a variety of scams related to the Employee Retention Credit. To make matters worse, there were multiple legislative changes that impacted ERC eligibility requirements after the original legislation was passed in March of 2020. These changes caused confusion about eligibility requirements, because many businesses and nonprofits that did not qualify under the original legislation, may now qualify under the new legislation. The calculations are complex, which is why the guidance of a trusted tax professional is highly recommended.
The IRS has issued warnings about Employee Retention Credit scams in the past, and those announcements led many to believe that the ERC itself was a scam, which could cause many business owners to miss out on this opportunity if they don’t act now.
Here is a summary of the most common scams and how to protect your business:
- Data mining websites – these websites are set up to collect your data, which they then sell to other companies that purchase their list of “ERC Leads.” Always speak with a human and verify their credentials before providing any private information.
- Pop-up ERC/ERTC Mills – These businesses formed specifically to take advantage of business owners and will likely go out of business after the statute of limitations on the ERC expires, nowhere to be found in the event of an audit. If they do not offer any other accounting services aside from ERC filings, it could be a red flag that they are an ERC/ERTC Mill.
- “ERC/ERTC Affiliates” – These are individuals who are often contractors of ERC Mills. “ERC/ERTC Affiliates”, are typically not accountants and are often paid large commissions to bring in leads that are then resold. The best way to avoid this scam is to avoid ERC/ERTC Affiliates altogether. “ERC/ERTC Affiliates” is a title created by middle-man companies to aggressively pursue leads that are then resold.
- Predatory Lending – Offers to “Fund your ERC in Days,” are red flags for predatory lending. It takes months for the IRS to issue a refund check under the ERC. “Funding,” your ERC prior to processing by the IRS, involves applying for a loan, and is usually accompanied by loan origination fees and high interest rates. Beware of anyone offering to “Fund” your ERC. The IRS will take up to 180 days to issue a check once you have filed for the ERC.Accepting funds prior to the IRS processing your filing, could leave you exposed to fraud and predatory lending.
- Intentionally inflated ERC filings – This scam involves engaging business owners who DO qualify for the ERC and modifying data to inflate estimated refund amounts. This scam is often seen in conjunction with predatory lending by ERC Mills. By misrepresenting the refund amount, they increase the loan amount, as well as charge fees and interest based on the inflated numbers. In the event of an audit, these inflated numbers do not match IRS records for previous tax filings, which would be flagged in an audit. These predatory lenders do not offer support in the event of an audit. If an ERC Mill filed a fraudulent ERC filing on behalf of a business, the business would be left owing the difference on the loan balance. That is why the IRS warns against working with companies that offer to “Fund,” the ERC.
- Fraudulent filings– In addition to manipulating numbers, many scammers tell business owners that they qualify when they actually do not; even going so far as convincing business owners to manipulate their own records to appear as if they qualify for the ERC. For example, many business owners are unaware that they can be eligible for the ERC even if they used the PPP, however, the ERC cannot be applied to the same wages as the PPP. There are other payroll expenses that are eligible to be claimed, but the calculations are complex. Beware of anyone who claims to be able to maximize your refund.
Due to the increase in fraudulent filings by scammers, the IRS has announced that they will be revamping their process for reviewing Employee Retention Credit filings. The IRS has added measures to flag fraudulent filings and identify those who are taking advantage of American Small Business Owners. These added measures have increased the time it takes the IRS to process ERC filings to 180 days.
What does this mean for your business?
If you have already filed for the Employee Retention Credit, this means that there will likely be a delay in receiving your refund from the IRS. Your filing will still be processed in the order it is received; however, these changes will result in a delay between the date your ERC is filed, and the date you receive your refund.
If your business is eligible and you have NOT already filed for the Employee Retention Credit, it is imperative to do so before the filing deadlines. The statute of limitations on filing for 2020 will expire in 2024, and the statute of limitations on filing for 2021 will expire in 2025. After the filing deadlines, the opportunity to pursue this refund will be lost.
The most important take-away from this announcement as a small business owner, is the importance of working with a trusted accounting professional that has considerable knowledge about the Employee Retention Credit, offers support in the event of an audit, and has extensive experience with the calculations and ERC filing process.
At Dominguez Accounting, we have been doing this from the beginning. In fact, the first ERC we processed was our own.
We are family owned and operated! We will never sell your private information. Every Employee Retention Credit filing we prepare is reviewed by Connie L. Dominguez, MBA-Accounting, IRS Enrolled Agent, Owner of Dominguez Accounting. We will be there for you throughout the filing process and beyond, with 100% support in the event of an audit, at no additional cost to our ERC Clients.
We invite you to schedule a FREE consultation to determine your eligibility for the Employee Retention Credit. If you don’t qualify, you don’t pay. If you do qualify, you receive all of the information you need to make important decisions regarding the ERC, upfront, with no cost or obligation.
Call today to schedule!
Office: (503) 509-9817
Para Español (503) 509-2093
Frequently Asked Questions
Is the IRS putting a halt on Employee Retention Credit filings?
The answer to this one is bothYesand No. You can still file for the ERC right now, however, there will be a delay in processing. For the time being, the IRS will only be actively processing ERCs that had been filed prior to the announcement. The IRS anticipates that they will resume processing incoming ERCs in January of 2024. They will be revamping their ERC review process. The influx of fraudulent filings has resulted in a backlog, which has increased the time it takes for the IRS to process the ERC to 180 days.
Should I wait to file for the Employee Retention Credit until January?
No. You can still file for the Employee Retention Credit NOW. The IRS has indicated that they will process new ERCs beginning in January 2024. This does NOT mean that you have to wait until January to file! Filing in the meantime, means that your ERC will be in the queue when the IRS resumes processing. The bottom line, is that the sooner you file, the sooner your ERC will be processed. Those who file for theEmployee Retention Credit between now and the end of the year, the soonest you can expect the IRS to issue your refund check is July 2024.
What is the significance of the IRS warning about “ERC Mills”?
These warnings mean that the IRS is taking these issues seriously. Accountants nationwide have been expressing concerns about these predatory practices for some time. Although these measures will cause a delay in processing for the time being, it will ultimately result in the identification of these scammers, preservation of the remaining ERC funds, and protections for American Business Owners.
Is the Employee Retention Credit a scam?
There have been many scams identified related to the Employee Retention Credit, however, the ERC itself is not a scam. If you have W-2 employees, your ERC eligibility is something you want to revisit as soon as possible.
How do I know my accountant is qualified to process my ERC filing?
One of the best ways you can ensure that your accountant is qualified to process your ERC is to verify credentials. An IRS Enrolled Agent is a federally licensed tax practitioner authorized to represent taxpayers before the IRS. Enrolled Agents must meet rigorous standards for knowledge and experience in tax law and are the best resource for examining what these legislative complexities mean for your business.
Is it too late to file for the Employee Retention Credit?
No. There is still time to file for the Employee Retention Credit. However, the statute of limitations on filing for 2020 expires in 2024, and the expiration on filing for 2021 expires in 2025, which means time is running out.
What happens if I do not file for the ERC before the statute of limitations expires?
Once the statute of limitations expires, business owners & non-profit leaders who have not filed for the ERC will forfeit their opportunity to file for a refund under the Employee Retention Credit.
As always, we are only a phone call away. We are here to answer your questions regarding the Employee Retention Credit, as well as any questions you may have related to this recent announcement from the IRS.
Thank you for choosing Dominguez Accounting: “Where your business is our priority.”
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