The Employee Retention Credit (ERC) is a valuable program designed to help small businesses retain their employees during periods of economic hardship, such as the COVID-19 pandemic. However, scammers have exploited this program, targeting unsuspecting small business owners with fraudulent schemes. In this article, we will delve deeper into the nature of ERC related scams, explore common tactics employed by scammers, provide examples of recent scams, and offer comprehensive tips and best practices to avoid falling victim to these ERC scams.
Understanding the Employee Retention Credit (ERC):
The Employee Retention Credit (ERC) is a tax credit available to eligible employers who continue to pay employee wages during periods of economic hardship. It was introduced in March 2020 as part of the CARES Act and provided a tax credit of up to 70% of an employee’s qualified wages. To qualify for the ERC, employers must meet specific criteria, such as experiencing a significant decline in gross receipts or being subject to a government order to suspend operations due to COVID-19. While the ERC is available to for-profit and non-profit employers, certain government entities and organizations receiving Paycheck Protection Program (PPP) loans may not be eligible.
Understanding ERC Related Scams:
ERC scams involve fraudulent activities that aim to exploit the Employee Retention Credit program by targeting eligible employers with false promises of assistance or by impersonating government officials to obtain personal or financial information. These scams can result in financial loss, identity theft, and other negative consequences for small business owners.
Common Tactics Used by ERC Scammers:
ERC scammers employ various tactics to deceive small business owners. Some of the most common tactics include:
- Offering assistance with the ERC application process for a fee: Scammers may approach business owners, claiming to be ERC experts and offering their services for a fee. They promise quick and easy approval of the ERC and exploit the business owner’s lack of familiarity with the program.
- Posing as government officials: Scammers may impersonate government officials or representatives of the Internal Revenue Service (IRS). They contact business owners, claiming to require personal or financial information to verify eligibility for the ERC. They may use spoofed phone numbers or email addresses to make it appear as if they are contacting the victims from a legitimate source.
- Creating fake websites and emails: Scammers often create fake websites or emails that mimic legitimate government resources. They use official logos and branding to make them appear authentic. These fake resources serve as a means to collect personal or financial information from unsuspecting small business owners or trick them into paying for services that never materialize.
- Phishing scams: Scammers may employ phishing scams to trick small business owners into revealing personal or financial information. They send deceptive emails that appear to be from a legitimate source, requesting sensitive data such as social security numbers or bank account information.
- Social engineering scams: Scammers employ social engineering tactics to gain the trust of their victims. They may claim to possess insider knowledge about the ERC program or create a sense of urgency to manipulate small business owners into sharing personal or financial information or paying for their fraudulent services.
How Scammers Target Small Business Owners:
Small business owners who are unfamiliar with the ERC program or facing financial difficulties due to the pandemic are particularly vulnerable to these scams. Scammers reach out to potential victims through various channels, such as online ads, social media platforms, or by cold-calling businesses.
They exploit the business owners’ desperate situation and offer false assistance with the ERC application process. Furthermore, scammers create deceptive websites or emails that mimic official government resources, aiming to trick small business owners into sharing personal or financial information.
Examples of Recent ERC Scams:
Several recent examples of ERC scams have been reported, shedding light on the deceptive tactics employed by scammers. These examples serve as warnings for small business owners to stay vigilant. In one scam, fraudsters claimed to offer assistance with the ERC application process for a fee.
They directed victims to a fake website that closely resembled a legitimate government resource. Unsuspecting business owners, desperate for help, fell victim to this scheme, losing money and sensitive information in the process. In another scam, scammers posed as government officials, using spoofed caller ID information to convince victims to provide personal or financial information over the phone. These are just a couple of instances among many ERC scams that small business owners should be aware of.
How to Avoid ERC Scams:
Protecting your business from ERC scams requires a proactive approach. Here are essential tips for identifying and avoiding ERC scams:
- Be wary of unsolicited offers of assistance: Exercise caution when approached by individuals or companies offering to assist with the ERC application process for a fee. Do not trust unsolicited calls or emails, especially those demanding payment.
- Verify the legitimacy of government resources: Before providing personal or financial information, verify the authenticity of any resources associated with the ERC program. Cross-check information, contact official government agencies directly, or consult trusted professionals.
- Protect your personal and financial information: Only share personal or financial information when you are certain about the identity and legitimacy of the request. Avoid sharing sensitive data over the phone or through email unless you have initiated the contact.
- Stay informed: Stay updated on the latest news and information about the ERC program and associated scams. Follow official government sources, reputable news outlets, and trustworthy business organizations to stay informed about potential scams and protective measures.
Best Practices for Protecting your Business from Scams:
In addition to the above tips, adopting best practices can significantly reduce the risk of falling victim to ERC scams. Consider implementing the following measures:
- Work with reputable professionals: Seek assistance with the ERC application process from trusted tax advisors, certified public accountants (CPAs), or other reputable professionals with expertise in the field. Research their credentials and verify their track record before engaging their services.
- Educate your employees: Educate your employees about ERC scams and provide them with the knowledge to identify potential threats. Conduct training sessions to raise awareness about common scam tactics and establish protocols for reporting suspicious activity.
- Use strong passwords and two-factor authentication: Strengthen your business’s digital security by using strong, unique passwords for all accounts and enabling two-factor authentication wherever possible. Regularly update passwords and ensure that employees follow good password hygiene practices.
- Monitor your accounts: Regularly monitor your bank accounts, credit reports, and other financial accounts for any unauthorized activity or suspicious transactions. Review bank statements, credit card statements, and other financial records carefully. If you detect any suspicious activity, report it immediately to the appropriate authorities.
Resources for Reporting ERC Scams:
If you suspect that you have been targeted by an ERC scam, it’s crucial to report it promptly. Here are some resources you can utilize:
- Contact the IRS: If you believe you have encountered an ERC scam, contact the IRS immediately and provide them with all relevant information. They can investigate the matter and take appropriate action.
- Report the scam to the Federal Trade Commission (FTC): The FTC is responsible for investigating and prosecuting scams that target small businesses. You can report ERC scams to the FTC through their website or by calling their helpline.
- Contact your state attorney general: Your state attorney general’s office can provide guidance and assistance in reporting ERC scams. They may also be able to take legal action against scammers operating within their jurisdiction.