I was talking to an IRS agent the other day about the ERC. They said around 80% of claims are fraudulent and not many people took part in the voluntary disclosure program the IRS offered. When I was a controller, I got a lot of cold calls from companies trying to convince us to apply for ERC. They’d say things like ‘everyone qualifies’ or ‘you may think you don’t, but you do,’ without even looking at our financials. These companies were pushy and predatory, and it didn’t feel right. Some charged thousands in fees or took a percentage of the credit to help businesses apply.
The company I worked for actually saw increased revenue, hired more people, and didn’t shut down during COVID. My COO wanted us to apply because he heard on the radio that ‘everyone qualifies.’ I refused, explained why, but he kept insisting. I just kept saying I’d get to it later, and then he eventually left the company. I knew if there was an audit later, I’d be stuck dealing with it, so I played it safe.
What have you guys been seeing with your clients or businesses? How is the IRS handling this now? Are they being lenient?
I’ve had clients who actually qualify, but their claims are still in limbo with the IRS. Some go back to January 2023! It’s frustrating because the IRS accepted every claim for a while, but now that they’re cracking down, legitimate claims are getting stuck in the process. A lot of blame goes to the predatory companies, but I also hold the business owners accountable. Some of them went ahead with those shady companies even after their accountants told them they didn’t qualify.
I’m a CPA. Had a client who asked us to check if they were eligible for ERC. Their revenue was up in 2020 and 2021, no shutdowns, so we told them they didn’t qualify. Of course, they turned around and used one of those sketchy ERC mills to claim the credit anyway.
Now we’ve had to amend their business returns and personal returns since it’s an S corp. Annoying, but whatever. Then, the owners decided to sell the business in a stock sale, meaning the new owners took on all the liabilities. To top it off, the previous owners convinced the new ones to give them the ERC checks when they come in. The new owners have no clue they’re on the hook if the IRS audits those ERC claims. I’m not working with them anymore, but I’d love to see how that turns out.
Haven’t seen any denied so far, but some are still pending. I know one client who filed claims that were totally fraudulent in my opinion, and they still got the money. I would have dropped them if it was up to me, but I wasn’t the one making that call.
Any company offering to help with ERC for a percentage is shady and will likely put you at risk. I stayed away from it until Paychex reached out and offered to do it for a low fixed fee. They already had all our payroll data, so it was easier, but we’ve been waiting over a year now, and the IRS still hasn’t processed it.
When ERC first came out, some clients asked if they qualified, and most were right—they didn’t. Then the predatory companies got involved, and I started getting calls where people were saying, ‘I was told I should qualify and need to file.’ Luckily, I have a good relationship with my clients, so I don’t think any of them went against my advice, but I know a lot of business owners got taken advantage of.
I’ve been through an ERC audit. The client wasn’t upfront about their situation, and when the IRS asked for proof, they folded. They did qualify for some of the credit, but not for all six quarters they applied for. The IRS denied the ineligible quarters and gave them the credit they were actually owed.
Another client used one of those ERC mills, and I had already checked—they didn’t qualify. I argued with their controller about ‘partial suspension of business’ due to supply chain issues, which is hard to prove. I had him call the supplier, and they refused to confirm anything in writing. We ended up returning the ERC money, thankfully before they cashed the checks. I got a nice fee for fixing that mess.
I work for the IRS and have seen cases where people used PPP/ERC/EIDL money to buy real estate that had nothing to do with the business. One case got referred to criminal investigations, but I’m not sure what happened since I was just assisting.
We do bank deposit analyses where we get bank records and classify deposits as taxable or non-taxable. This helps us figure out if businesses reported their income correctly. If you used the funds improperly, there’s a chance of facing criminal charges, so be careful.
The company I was at used KPMG to help with the ERC, but they sat on it instead of filing right away. By the time they filed, the IRS announced a moratorium. As far as I know, it’s been sitting in a queue since October 2023.
We had an IRS compliance officer help us with a different issue, and they pushed one of our claims through. We’re waiting on about $12 million in ERC and told the controller to set up a VA because who knows if it’ll ever get accepted.
I had one ERC claim denied, and I understand why. The IRS just looks at yearly gross receipts in their initial review. When you break it down by quarter and use the lookback rule, you can justify the claim. I’ll be working on the response to argue the credit in the next few weeks.
