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IRS Warns About ERC Scams in Annual Dirty Dozen List


The Internal Revenue Service (IRS) has recently added promoter claims involving the Employee Retention Credits (ERCs) to its annual Dirty Dozen list of tax scams. This decision comes after observing a surge in illegitimate claims being filed by businesses and individuals who have been misled by aggressive marketing tactics employed by promoters.


These promoters use various platforms like radio and the internet to advertise their ERC services. Their advertisement campaigns are often based on inaccurate information regarding eligibility requirements and credit computations. IRS Commissioner Danny Werfel expressed his concerns about the aggressive marketing of these credits, stating that it is “deeply troubling and a major concern for the IRS.”


The ERC was designed to provide financial support to eligible businesses during the COVID-19 pandemic. These businesses must have either experienced a government shutdown or a significant decline in gross receipts. The credit is not available to everyone, and there are specific guidelines that must be met to qualify for it. Unfortunately, many honest taxpayers have been caught up in these schemes due to false advertising and misleading promotions.


In response to the rise in fraudulent claims, the IRS is increasing enforcement actions, conducting audits, and initiating criminal investigations related to false ERC claims. Taxpayers should be aware that they are ultimately responsible for the accuracy of their tax returns, and any improper claims could result in repayment of the credit along with potential penalties and interest.


Werfel advises businesses to be cautious of advertised schemes and solicitations promising tax savings that seem too good to be true. He encourages taxpayers to consult with trusted tax professionals and remember they are responsible for the information reported on their tax returns. Improperly claiming the ERC could result in repayment of the credit along with potential penalties and interest.


The IRS is also warning taxpayers to be cautious of third-party promoters who do not accurately explain eligibility for and computation of the ERC. Some of these promotions may exist solely to collect personally identifiable information for identity theft purposes. Tax professionals are encouraged to advise their clients not to file ERC claims if they do not qualify, as the IRS has been warning about this scheme since last fall.


How to Report Tax-Related Fraud and Scams, Including ERC Schemes

Employers who encounter instances of fraud or IRS-related phishing attempts should report them to the IRS at phishing@irs.gov and the Treasury Inspector General for Tax Administration at 800-366-4484.


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