IRS Warnings: Protect Your Clients from Bad ERC Mills
Understanding the Risks of Bad ERC Mills
The Internal Revenue Service (IRS) has recently issued multiple warnings regarding the dangers of engaging with bad actors, also known as ERC Mills, to provide tax credit services to taxpayers in the US. These organizations have been identified as scams, and their inclusion in the IRS Dirty Dozen list should not be taken lightly.
Watch out for the following red flags:
- Promises of unusually high or guaranteed ERC refunds
- Aggressive marketing tactics, including unsolicited emails or phone calls
- Lack of transparency in their process or fee structure
- Unwillingness to provide references or testimonials
- Inadequate knowledge of the ERC program and related regulations
HIDDEN DANGERS OF ERC MILLS
Lack of tax credit expertise
ERC Mills are not tax credit experts. Most of these organizations did not exist before the employee retention tax credit was introduced, and their staff often comes from unrelated industries, such as 401K, benefits, real estate, or insurance. This lack of experience and expertise in tax credits makes them ill-equipped to provide accurate and reliable tax credit services.
ERC Mills have a reputation for taking aggressive positions on tax credit claims, which raises red flags with the IRS and opens their clients up to audit and the possibility of false claims. Tax preparers are liable for filing accurate information on behalf of their clients. If they knowingly file inflated claims, they may face immense penalties and fees.
Outsourcing and cursory reviews
Many ERC Mills outsource calculations, number crunching, and document collection to offshore locations like the Philippines. They claim to conduct robust reviews of their work, but in reality, their CPAs perform only cursory reviews before sending the projects to clients. This raises questions about the quality and accuracy of the work being done.
Inadequate Due Diligence
ERC Mills often do not perform due diligence on the documents they receive from clients. Crucial information that directly impacts an accurate claim being made is often missed or overlooked. As a result, the right questions are not being asked, and clients may unknowingly provide incorrect answers to complex tax situations.
Report Suspected ERC Mills
To report tax-related illegal activities relating to ERC claims, submit Form 3949-A, Information Referral PDF. You should also report instances of fraud and IRS-related phishing attempts to the Treasury Inspector General for Tax Administration at 800-366-4484.
Mail: Internal Revenue Service Lead Development Center
24000 Avila Road
Laguna Niguel, California 92677-3405
Share Your Experience and Connect with Others
We encourage you to share your experiences or ask questions about dealing with bad ERC mills. We would love to hear from you; contact us directly via our contact form. Together, we can raise awareness and help protect our clients and practices from the risks posed by fraudulent ERC mills.