ERC Scams Make the IRS Dirty Dozen List.

The "Dirty Dozen" represents the worst of the worst tax scams and is issued annually by the IRS. Many of these schemes peak during tax filing season as people prepare their returns or hire someone to help with their taxes. The scams put taxpayers and tax professionals at risk of losing money, personal information, data, and more.

This year, the IRS is highlighting Employee Retention Credits following what they call "blatant attempts by promoters to con ineligible people to claim the credit." The IRS specifically called out schemes from promoters who have been blasting radio and internet ads touting ERC refunds. These promotions can be based on inaccurate information related to eligibility for and computation of the credit.

ERC Eligibility

Eligible taxpayers are those employers with qualified wages paid between Mar. 13, 2020, and Dec. 31, 2021. Additionally, you must have:

Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings because of COVID-19 during 2020 or the first three quarters of 2021;

Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021; or

Qualified as a recovery startup business for the third or fourth quarters of 2021.

And, these credits are limited to business owners— they are not available to individuals.

If you do not meet the criteria, your business should not apply for the ERC, no matter how good it might sound. And there's no double dipping—eligible employers cannot claim the ERC for any quarter for which wages were reported as payroll costs in obtaining Payroll Protection Plan (PPP) loan forgiveness or were used to claim certain other tax credits.

"Businesses should be wary of advertised schemes and direct solicitations promising tax savings that are too good to be true," IRS Commissioner Danny Werfel warns. "They should listen to the advice of their trusted tax professional. Taxpayers should remember that they are always responsible for the information reported on their tax returns. Improperly claiming this credit could result in taxpayers having to repay the credit along with potential penalties and interest."

Penalties And Reporting

The willful filing of false information and fraudulent tax forms can lead to serious civil and criminal penalties.

As part of the Dirty Dozen awareness effort, the IRS encourages people to report tax-related, illegal activities relating to ERC claims, as well as individuals who promote improper and abusive tax schemes and tax return preparers who deliberately prepare improper returns.

The IRS encourages employers to report fraud and IRS-related phishing attempts to the IRS via email at phishing@irs.gov and to the Treasury Inspector General for Tax Administration online or by phone at 1.800.366.4484.

To report an abusive tax scheme or a tax return preparer, file Form 14242, Report Suspected Abusive Tax Promotions or Preparers, with any supporting evidence to the IRS Lead Development Center in the Office of Promoter Investigations.