Has your ministry received an unsolicited call, text, or letter offering to help you secure significant cash benefits by applying for the Employee Retention Credit (ERC)? You would not be alone, and the IRS is warning — again — for organizations to be cautious.

The ERC is a refundable tax credit for organizations that kept employees on their payrolls despite government-forced suspensions of operations or significant declines in receipts during the COVID-19 crisis in 2020 and 2021. Debuting in the 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act, the ERC was modified in subsequent legislation to allow qualified employers thousands of dollars in assistance per retained employee for wages paid through September 30, 2021.

Many groups have legitimately benefited from this credit, but the availability of such significant amounts of cash is also attracting scammers eager to exploit businesses and charities that may not be eligible for the ERC.

"The aggressive marketing of the Employee Retention Credit continues preying on innocent businesses and others," said IRS Commissioner Danny Werfel in a public alert last week. "Aggressive promoters present wildly misleading claims about this credit. They can pocket handsome fees while leaving those claiming the credit at risk of having the claims denied or facing scenarios where they need to repay the credit.”

The IRS notes a “a barrage of aggressive broadcast advertising, direct mail solicitations and online promotions,” which often promise likely access to the ERC and nearly instant eligibility determinations. Those solicitors often want hefty upfront fees or a percentage of the ERC cash amount they purport to secure for an organization. They may also simply be phishing for personal information to use in identity theft schemes.

The IRS warns that the prevalence of radio, TV, and internet ads can give an air of legitimacy to suggestions that the ERC is easy money, but the agency wants groups to take care that they don’t get caught up in these schemes. Ultimately, nonprofits and others groups may be left holding the bag, not only for fees siphoned away by the scammers, but also for payback and penalties due to the IRS because of illegitimate claims. 

“Businesses need to think twice before filing a claim for these credits,” Commissioner Werfel stated in a release earlier this year highlighting this problem as one of the agency's annual “Dirty Dozen” tax scams. 

“There are very specific guidelines around these pandemic-era credits; they are not available to just anyone,” he added. “People should remember the IRS is actively auditing and conducting criminal investigations related to these false claims.”

ECFA will hold a webinar titled “The Employee Retention Credit – The Good, the Bad, and the Ugly” featuring leading nonprofit CPA’s Mike Batts and Kaylyn Varnum on Wednesday, June 7. Batts, also a current ECFA board member and past board chair, has suggested the scams around the ERC “may very well be the biggest tax fraud scandal of all time."

“Making a claim for a very large cash benefit from the federal government under penalty of perjury is serious business,” he said. “I expect that a large part of the IRS’s job over the next several years will be to pursue improper ERC claims.”  

“The results are likely to be staggering,” he added.

ECFA will continue to monitor ERC developments at the IRS and on Capitol Hill. We also encourage you to participate in the June 7 webinar if you would like to help your ministry stay on solid ground in its ERC considerations in the months and years ahead.