Most of us in the tax preparer world have had this rather uncomfortable conversation by now. Our client calls saying they met so and so at some expo, networking event or heard them on social media talking about their business being owed a bunch of money from the IRS for the Employee Retention Credit.
There are pop up ERTC “processors” coming out of the woodwork and even advertising now. I personally see an ad on social media in addition to receiving a call on my office line at least once per week. It sounds attractive to our clients no doubt, up to $26,000 per employee in seemingly “free” money.
But as most of us know, if it seems too good to be true, it probably is.
The conversation gets dicey when we, as EAs and CPAs fielding these types of questions, have to politely explain to our clients why they don’t qualify for these credits. Pop up shops around the country are calculating credits with no real due diligence and using bogus claims to help clients “qualify” on the surface. We are made to look like the bad cop when we swoop in and suggest that our client isn’t entitled to millions in free funds.
These shops have a lot of red flags and it may help to point some out to your clients. For one, most of them have contracts that absolve them of any liability should the credits turn out to not be legitimate or have issues later on, like say under an audit.
Many of them are taking their fees (huge fees) from the credits themselves. In other words, if you are audited after having to return any or all of the money, you now will have to pay back the huge chunk also paid to the pop-up firm that calculated it for you because you signed a liability waiver and they took their fee before issuing the credit to you. Some shops are not even willing to sign the forms clients have to send to the IRS.
Helping clients understand the risks might make these conversations easier. The IRS is fully aware of the rampant fraud pertaining to ERTC and crackdowns are expected to come with more force.