IRS Warns Small Businesses of COVID Tax Credit Scam

If a telemarketer tells you, the Internal Revenue Service owes your small business thousands. Watch out! You may find it too good to be true.

The IRS says companies contact small businesses telling them to apply for something called the Employee Retention Tax Credit.

“Scammers and unscrupulous promoters continue to run aggressive broadcast advertising, direct mail solicitations and online promotions for the credit,” the IRS warned in a memo last year. “Many of these ads wildly misrepresent and exaggerate who can qualify for the ERC, which is sometimes also called ERTC or the Employee Retention Tax Credit.”

Of course, the Employee Retention Tax Credit really exists. The government established it to help small businesses keep paying employees during the COVID-19 shutdown. It also applies to businesses with receipt losses related to COVID-19 during the eligible period.

However, unscrupulous companies tell small businesses almost everyone is eligible for the credit. Then, they offer to fill out the application paperwork.

The IRS lists several warning signs to look for.

  • You receive unsolicited calls or ads promoting an easy application process.
  • Promoters tell you they can determine your eligibility in minutes — or without learning about your tax situation.
  • They want big upfront money to do paperwork.
  • They offer to handle the application for a share of your refund.
  • They tell small businesses they have “nothing to lose” by applying.
  • They tell small business owners to ignore the advice of tax professionals.

However, many businesses that are approached fail to meet the eligibility requirements. Worse yet, the IRS says businesses gaining the funds improperly must repay them—often with interest and fines.

Scott Volner, President of Catalytic Innovations LLC, in Phelps County, Missouri, got $330,000 in funds by applying. He now needs to return it all somehow.

“It’s gonna be a long hard road to tow to get this paid back,” Volmer said in a recent interview with NBC News.

IRS Commissioner Danny Werfel estimates there’s been $2.8 billion in fraud connected to the Employee Retention Tax Credit thus far.

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