ERC Scams: How To Spot Them & How To Avoid Them

What is 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, such as the COVID-19 pandemic. The ERC 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 be eligible for the ERC, employers must meet certain criteria, such as experiencing a significant decline in gross receipts or being subject to a government order to suspend operations due to COVID-19. The ERC is available to for-profit and non-profit employers, but certain government entities and organizations receiving Paycheck Protection Program (PPP) loans may not be eligible.

Unfortunately, as with any government program, there are scams associated with the ERC. Scammers may target small business owners by offering to assist with the ERC application process for a fee or by posing as government officials seeking personal or financial information. It’s important for business owners to be aware of these scams and to take steps to protect themselves.

What are ERC Scams?

ERC scams are fraudulent activities that seek to exploit the Employee Retention Credit program by targeting eligible employers with false promises of assistance or by posing as government officials to obtain personal or financial information. These scams can lead to financial loss, identity theft, and other negative consequences for small business owners.

Common Tactics Used by ERC Scammers:

ERC scammers may use a variety of tactics to deceive small business owners. Some of the most common tactics include offering to assist with the ERC application process for a fee, posing as government officials seeking personal or financial information, and using fake websites or emails to mimic legitimate government resources. Scammers may also use social engineering techniques to gain the trust of their victims, such as by claiming to have insider knowledge or by creating a sense of urgency.

How Scammers Target Small Business Owners:

Scammers target small business owners unfamiliar with the ERC program or struggling financially due to the COVID-19 pandemic. They may use online ads or social media to reach potential victims or may cold-call businesses to offer assistance with the ERC application process. They may also use fake websites or emails to mimic legitimate government resources and trick victims into sharing personal or financial information.

Examples of Recent ERC Scams:

The IRS and other organizations have reported several recent examples of ERC scams. In one scam, fraudsters claimed to offer assistance with the ERC application process for a fee and directed victims to a fake website resembling a legitimate government resource. In another scam, scammers posed as government officials and used spoofed caller ID information to convince victims to provide personal or financial information over the phone. These are just a few examples of the many ERC scams that small business owners should know.

Common Types of ERC Scams

1. Assistance with ERC Application for a Fee: Scammers may offer assistance with the ERC application process for a fee, either online or over the phone. They may use high-pressure tactics to convince small business owners to pay for their services, promising quick and easy approval of the ERC.
2. Posing as Government Officials: Scammers may pose as government officials or representatives of the IRS, claiming to need personal or financial information to verify eligibility for the ERC. They may use spoofed phone numbers or email addresses to make it appear they are contacting you from a legitimate source.
3. Fake Websites and Emails: Scammers may create fake websites or emails that mimic legitimate government resources, using logos and branding to make them appear official. They may use these fake resources to collect personal or financial information or to trick small business owners into paying for their services.
4. Phishing Scams: Scammers may use phishing scams to trick small business owners into providing personal or financial information. This can include emails that appear to be from a legitimate source, asking for information such as social security numbers or bank account information.
5. Social Engineering Scams: Scammers may use social engineering tactics to gain the trust of their victims, such as by claiming to have insider knowledge or by creating a sense of urgency. They may use this trust to convince small business owners to provide personal or financial information or to pay for their services.

It is important for small business owners to be aware of these common types of ERC scams and to take appropriate measures to protect themselves and their businesses. This can include staying informed about the ERC program, verifying the legitimacy of any resources or offers, and reporting any suspected scams to the appropriate authorities.

How to Avoid ERC Scams

Tips for identifying and avoiding ERC scams:

1. Be wary of unsolicited offers of assistance: Scammers may contact small business owners offering to assist with the ERC application process for a fee. Be cautious of any offers requiring payment, and do not trust unsolicited calls or emails.
2. Verify the legitimacy of government resources: Scammers may create fake websites or emails that mimic legitimate government resources. Verify the legitimacy of any resources before providing personal or financial information.
3. Protect your personal and financial information: Do not share personal or financial information unless you are certain of the identity and legitimacy of the request.
4. Stay informed: Stay updated on the latest news and information about the ERC program and any associated scams. This can help you to identify potential scams and take appropriate measures to protect your business.

Best Practices for Protecting your Business from Scams:

1. Work with reputable professionals: Seek assistance with the ERC application process from reputable tax advisors or other professionals.
2. Educate your employees: Educate your employees about ERC scams and how to identify potential threats. This can help to prevent scams from being successful.
3. Use strong passwords and two-factor authentication: Use strong passwords and two-factor authentication for all accounts and devices that contain personal or financial information.
4. Monitor your accounts: Monitor your bank accounts, credit reports, and other financial accounts regularly for unauthorized activity.

Resources for Reporting ERC scams

1. Contact the IRS: If you suspect an ERC scam has targeted you, contact the IRS immediately.
2. 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 any ERC scams to the FTC online.
3. Contact your state attorney general: Your state attorney general may also be able to assist you with reporting ERC scams and taking appropriate legal action.

Preventive Measures to Avoid ERC

To protect your business from ERC scams, it is important to take appropriate measures, including:

1. Educate Employees: Educate your employees on common ERC scams and the importance of vigilance. Ensure they know potential threats and how to identify and report suspicious activity.
2. Implement Security Measures: Implement appropriate security measures, such as using strong passwords, regularly updating software and antivirus programs, and limiting access to sensitive information.
3. Monitor Accounts and Transactions: Regularly monitor your accounts and transactions for an unauthorized activity or suspicious transactions. Review bank statements, credit card statements, and other financial records carefully, and immediately report any suspicious activity to the appropriate authorities.

Recap of Key Takeaways

The Employee Retention Credit (ERC) is a valuable program designed to help small businesses retain their employees during the COVID-19 pandemic. However, scammers have used the program to target unsuspecting small business owners. To protect your business from ERC scams, it is important to know common tactics scammers use, verify the legitimacy of any resources or offers, and report any suspected scams to the appropriate authorities.

Importance of Staying Vigilant to Protect your Business

Small business owners are particularly vulnerable to scams, as they may not have the resources or expertise to identify potential threats. Staying vigilant and taking appropriate measures to protect your business can help to prevent scams from being successful.

Final Thoughts and Recommendations

While the ERC program can be a valuable resource for small businesses, it is important to remain vigilant and protect your business from scams. This can include working with reputable professionals, educating your employees, and monitoring your accounts regularly. By taking these steps, you can help ensure that your business is protected and that you can take advantage of the benefits of the ERC program.