How to choose a legitimate ERC referral partner

Because the Employee Retention Credit (ERC) is so lucrative, many unscrupulous ERC opportunists submit slipshod applications for clients with little or no documentation, collect their portion of the client’s ERC check, and go on their way. Because there are so many ERC fraudsters, it’s hard for honest tax accountants to find an ERC professional who won’t embarrass them by making headlines in a trillion-dollar ERC audit by the IRS.

But despite the many ERC fraudsters, there are honest ERC professionals who genuinely care about their clients’ valid ERC success and overall audit readiness—but you have to know how to identify them.

Look for proof of pre-ERC existence

Most, if not all, ERC mills popped up overnight in 2020 to seize the lucrative opportunities presented by the ERC. Through aggressive marketing campaigns, these companies have been able to entrench themselves with taxpayers who don’t know enough to distinguish a fraud from an expert. If you’re researching an ERC partner, be wary of any company that sprang up in response to the ERC’s enactment. When possible, choose a consulting firm or accountant who has a demonstrated history of success with clients outside the ERC niche, as evidenced by online client reviews and authentic peer recommendations.

Determine if they’re more interested in selling or substantiating their ERC position

Between the gray area surrounding the ERC suspension test and the various myths spread by ERC mills, it’s common for unscrupulous ERC professionals to use slick words instead of accurate facts to convince clients their ERC position is correct. But, as ERC audits make headlines more often, it’s best to choose a partner that is committed to substantiating their ERC positions for clients with thorough documentation and reasonable interpretations of available IRS guidance. At MBS Accountancy, we’ve taken this approach; while we want each of our clients to seize every available tax opportunity, we also don’t want any potential client ERC audits to go badly because of insufficient documentation.

Don’t let big referral fees steal your professional prudence

As Dan Chodan, CPA, recently tweeted, “People really do not like to talk about problematic ERC mills—especially when they have been receiving big referral fees.” Many ERC mills are paying accountants and CPAs to send their ERC clients their way. AICPA Communication Manager Kelly Mullins recently discussed these ERC referral fees in an episode of Ethically Speaking. Regarding ERC fees, Joan Farris and John Wiley made the following two points:

1. If 941 returns are amended, you’ll need to revise the client’s annual tax return. Revising the annual tax return means you’ll be signing off on the ERC work done by your ERC partner, including ERC determination, revenue calculations, and any documentation provided as evidence of the ERC position. In addition, if you’re a CPA, you must comply with established professional standards such as the Statements on Standards for Tax Services.
2. ERC mills popped up overnight and may not be around if clients come calling. Joan and John pointed out that many ERC mills sprouted up to seize an opportunity—and may not be around for very long. Instead, if clients have questions or concerns about their ERC claim, they will likely come to you and demand an explanation of the work done for the ERC claim. If the work was sloppy or inaccurate, you may end up exposed to liability.

Not all referral fees are worth it

There is a significant amount of time and research that goes into ERC work, which many professionals may not be willing to do. When used strategically, partnerships are great for business growth. But not all partners are created equal, especially when it comes to a lucrative and nuanced opportunity such as the ERC. By taking time to properly vet your ERC partner, you can avoid an embarrassing connection to unfavorable ERC audit headlines.