Treasury Warns Lenders, Small Biz Owners of $3 Billion ERC Mills COVID-19 Tax Credit Fraud
The November 22nd alert says the IRS has identified ongoing fraud and scams related to the ERC that have resulted in 323 investigations involving more than $2.8 billion of potentially fraudulent ERC claims.
These fraudulent claims have disrupted the IRS’s ERC claim review process and created a significant backlog and caused delays in the processing of legitimate ERC claims filed by eligible businesses.
While portions of that backlog have cleared, the IRS has shifted its attention to investigating questionable ERC claims and has placed a moratorium on the filing of any new claims.
Special scrutiny is on Third-party promoters, known as “ERC mills.”
They have been deploying aggressive marketing tactics such as mail notices designed to look like official IRS communications and advertisements on radio, social media, and television to convince businesses to use the promoters’ services to apply for the ERC.
Promoters may also directly contact businesses through mail, phone, or walk-ins, indicating that they are “ERC experts” or tax professionals who have determined the business is missing out on COVID relief funds they are entitled to receive.
Promotion scams are likely to target established businesses in an attempt to avoid IRS scrutiny in the claim. After convincing the business to apply for the ERC through dishonest tactics, ERC mills will file an ERC claim on behalf of the business, neglecting to inform the business of the eligibility requirements. These third-party scammers may refuse to provide detailed information to business owners on how the businesses’ eligibility determination was made and the computations used to determine the ERC amount.
As a tactic to mitigate liability, the promoters may also avoid signing the ERC return they prepared for the business. Promoters typically charge a business a large upfront fee, sometimes upwards of 30-40 percent of the expected ERC, or a fee that is contingent on the amount of the credit.
Since these promoters are profit-driven, businesses for whom they file may receive an extremely large ERC that is not commensurate with the size of the business.
Promoters may also submit claims on behalf of businesses without their knowledge and using stolen information to steal the taxpayer’s personal information for use in other identity theft schemes.