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For the last two years, the American Institute of CPAs (AICPA) has diligently and consistently advocated on behalf of taxpayers and CPAs to the Internal Revenue Service (IRS) and the Department of the Treasury regarding unscrupulous third-party vendors promoting improper Employee Retention Credit (ERC) claims.
The ERC, established as part of a COVID-19 relief package to aid businesses during the pandemic, has been exploited by unethical credit mills and other bad actors to submit claims on behalf of businesses that are either unqualified or qualified for a much smaller credit, charging upfront contingency fees of up to 30% of the claimed credit.
These claims, when audited by the IRS, could result in drastic reductions of the improperly obtained credits, costing the business significantly.
A hearing convened by the Oversight Subcommittee of the House Ways & Means Committee on July 27, 2023, addressed the persistent fraud and backlog of the ERC. The hearing included testimony from several tax practitioners, including a CPA who expressed great concern about the level of fraud in the program.
Members of the Committee from both sides of the aisle expressed outrage over ERC promoters’ impact on CPA firms and their clients and wondered what Congress could do to help CPAs fight these bad actors.
The AICPA has provided resources and information to its members to warn their clients of red flags that could indicate that a vendor is dishonest and discourage dealings with these ERC mills. Among the warning signs businesses should be wary of are vendors that require large, upfront contingency fees and those who fail to sign the amended payroll tax returns.
Augmenting earlier advocacy efforts on ERC, the AICPA is reiterating recommendations to the IRS to aid in improving the backlog of ERC credit processing, addressing the impact of ERC fraud on taxpayers and discussing the impact of this fraud on CPA firms, in addition to developing written testimony to the House Oversight Subcommittee on ERC fraud.
Melanie Lauridsen, AICPA's VP of Tax Policy & Advocacy, says businesses across the country are being taken advantage of by these dishonest credit mills, and their CPAs are caught in the middle of trying to help their clients and fight off the relentless targeting by ERC vendors.
“CPAs have saved many of their clients from being preyed upon by these mills, but there are still too many others being exploited," Lauridsen says. "Businesses need to remain vigilant of offers that promise large refunds and require contingency fees based on those refunds. A business’s best practice is to have everything reviewed by their CPA prior to paying for or filing anything.”
To report tax-related illegal activities relating to ERC claims, submit Form 3949-A, Information Referral. You should also report instances of fraud and IRS-related phishing attempts to the Treasury Inspector General for Tax Administration at 800-366-4484.
For more resources and information, visit the AICPA Employee Retention Credit Resource Center.
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