If you have received cold calls, direct mail, or social media ads promising you tens of thousands of dollars through the Employee Retention Credit, you are not alone. ERC promoters have saturated the market, and the IRS is increasingly concerned that many claims being filed are ineligible. Before you sign anything, here is how to evaluate whether your business actually qualifies.
The Real Eligibility Requirements
The ERC was designed for two specific situations during the COVID-19 pandemic. First, your business experienced a significant decline in gross receipts: greater than 50% compared to the same quarter in 2019 (for 2020 claims) or greater than 20% (for 2021 claims). Second, your business was subject to a full or partial suspension of operations due to a government order (federal, state, or local).
That is it. There is no third category. If your business did not experience either a qualifying decline in gross receipts or a government-order suspension, you do not qualify, regardless of what a promoter tells you.
Red Flags from Promoters
“Every business qualifies.” This is false. Eligibility depends on your specific facts and circumstances.
Percentage-based fees. Legitimate tax professionals typically charge flat fees or hourly rates. A promoter who charges 15-25% of your credit has a financial incentive to inflate your claim.
No review of your financials. A legitimate claim requires analysis of your quarterly gross receipts and specific government orders affecting your operations. If someone offers to file without reviewing your books, they are guessing.
Unsolicited contact. Tax advisors and enrolled agents generally do not cold-call businesses to sell ERC services. Aggressive outreach is a hallmark of promoter mills.
The Risk of Filing a Bad Claim
You, not the promoter, are responsible for the accuracy of your tax return. If the IRS determines your ERC claim was invalid, you owe the full credit back plus penalties and interest. In cases of fraud, criminal prosecution is possible. The promoter’s guarantee is worthless if they disappear when the IRS comes knocking.
What to Do
If you believe your business genuinely qualifies, work with a credentialed tax professional (enrolled agent or tax attorney) who will review your actual financial records and the specific government orders that affected your operations. Get a written analysis of your eligibility before filing. And if you have already filed a claim through a promoter, consider having it independently reviewed before the IRS processes it.