On October 19, 2022, the Internal Revenue Service (“Service”) issued news release IR-2022-183, which was intended to warn employers using third-party promoters of Employee Retention Tax Credits (“ERTCs”). ERTCs were created by the CARES Act and were designed for businesses that continued to pay employees during the pandemic and either sustained a full or partial suspension of operations due to government orders or experienced a significant decline in gross receipts during 2020 and/or the first three quarters of 2021. A qualifying employer could receive a maximum benefit of up to $26,000 per employee. For example, an employer with 200 employees could receive up to $5,200,000 pursuant to the ERTC program. While the cutoff of the ERTC program was September 30, 2021, for most businesses, Taxpayers can still apply for these ERTCs by amending their employment tax returns.

The message from the IRS in this news release is they are concerned about third-party firms agreeing to help employers claim these ERTCs on a contingent basis, then taking overly aggressive or unsupportable positions related to the employer’s eligibility for and computation of the credit. One frequently seen example is claiming credits for all available quarters without either an applicable government order suspending business operations nor a significant drop in gross receipts. By taking all available quarters, there is concern that promoters are maximizing their contingent fee at the ultimate risk of the...

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