Seven red flags of a bad ERC claim

Few letters have haunted the post-pandemic business world — and, by association with certain clients, accounting firms — like “ERC.”

The Employee Retention Credit was intended as a relief tool to help companies keep people on the payroll even while hammered by COVID shutdowns. Whether through their own greed or the pitches of hucksters, many business clients fudged their ERC applications, pocketed the money and hoped no one would notice.

The Internal Revenue Service did (after temporarily halting the processing of new ERC claims). Last fall, the agency started giving employers a way to withdraw inaccurate ERC claims if they’d fallen for the scams of ERC “mills” that aggressively promoted the credit to businesses. Soon after came the IRS’s voluntary disclosure program for businesses that wanted to pay back the money after filing bad ERC claims. The VDA program’s deadline is March 22.

As the deadline clock ticks, the IRS has highlighted seven warning signs that an ERC claim may be questionable. (The agency also has an FAQ page on the subject.)