ERC Scams: How To Protect Your Business From Fraud & Promoter Schemes

The Employee Retention Credit program is closed, but ERC scams are still evolving. While early scams targeted businesses looking to file claims, a new wave of fraudsters is now targeting businesses that already claimed the ERC, offering to “fix” audits, dispute disallowance letters, or recover funds for an upfront fee.

In this guide, we’ll break down how ERC scams work, what the latest tactics look like, and how to protect your business at every stage of the process.

What Are ERC Scams?

ERC scams involve third-party companies or individuals targeting small business owners with fraudulent ERC-related services. In the early days of the program, most scams focused on getting businesses to file claims they didn’t qualify for. Today, the tactics have shifted.

With the filing window closed and IRS enforcement ramping up, a new generation of scammers is targeting businesses that already claimed the ERC. These third parties offer to “fix” audit notices, dispute disallowance letters, or recover funds in exchange for upfront fees. These fraudsters often pose as tax professionals, ERC specialists, or even IRS representatives.

In every case, the outcome is the same: the business owner is left worse off, and the IRS holds them responsible — not the scammer.

Common Types Of ERC Scams

There are several types of reported ERC scams. Here are the most common ERC scams and how to spot them.

ERC Mills

ERC mills are companies that mass-filed erroneous ERC claims, often contacting small business owners out of the blue and guaranteeing refunds without reviewing eligibility. Many business owners didn’t realize they had been swept up in a fraudulent filing until an audit notice arrived.

With the filing window now closed, some ERC mills have pivoted and are now targeting businesses facing audits or disallowance letters, offering to “fix” their claims for a fee. These are the same bad actors operating under a new angle, and they should be avoided entirely.

Ghost Preparers

Ghost preparers pose as tax professionals and help business owners prepare their returns, but refuse to sign as the preparer so they can disappear without a trace. In ERC cases, ghost preparers would often inflate credit amounts or redirect refunds to their own bank accounts.

If you worked with someone who filed your ERC claim but never signed your return, that’s a serious red flag worth discussing with a legitimate tax professional immediately.

Audit & Recovery Scams

This is the newest and fastest-growing category of ERC fraud. As IRS enforcement has ramped up, a wave of scammers has emerged specifically targeting businesses that received disallowance letters or audit notices. These fraudsters offer to dispute your disallowance, negotiate with the IRS, or recover your funds for an upfront fee.

The IRS has specifically warned about this tactic. Legitimate tax professionals do not cold-call businesses about audit issues, and any unsolicited offer to “fix” your ERC audit should be treated as a scam.

Look For These Red Flags To Identify Potential ERC Scams

Whether you’re being contacted about a new ERC opportunity or someone is offering to help with an existing claim, these red flags should put you on alert:

What To Do If You Used An ERC Mill

If you’re concerned that the company that filed your ERC claim was an ERC mill, you have options. The most important thing to understand is that even if you were misled, you are still legally responsible for the contents of your tax return.

That said, being a victim of an ERC mill does not automatically mean you’ll face criminal charges or severe penalties. Here’s what to do:

Review Your Claim

Start by using the IRS ERC Eligibility Checklist to assess whether your claim appears legitimate. Look for the warning signs: Were you told you qualified before anyone reviewed your records? Did the company charge a contingency fee of 25% or more? Did they file without asking for detailed documentation? These are all red flags that you may have worked with an ERC mill.

Consult A Tax Professional

Before taking any action, speak with a legitimate tax attorney or CPA, not another third-party ERC service. They can review your claim, assess your exposure, and help you determine the best path forward.

Consider Your Options

Depending on where your claim stands, you may be able to:

• Withdraw your claim if it hasn’t been paid yet, and you haven’t cashed a refund check
• Amend your return if you need to reduce — but not fully withdraw — your claim
• Work with a tax professional to proactively address the issue before the IRS contacts you

Report The ERC Mill

If you believe you were misled by an abusive ERC promoter, you can report them to the IRS by filing Form 14242, Report Suspected Abusive Tax Promotions or Preparers, along with any supporting documentation you have.

If you’re currently facing an audit and an ERC mill was involved, tell your auditor. You are still legally responsible, but being able to demonstrate that you relied on bad advice from a preparer may help reduce or eliminate accuracy-related penalties.

How To Protect Your Business From ERC Scams

With the filing window closed, the biggest threat now is scammers targeting businesses already facing IRS scrutiny.

Be skeptical of anyone who contacts you unsolicited. Any unsolicited offer to help with your ERC audit, dispute a disallowance letter, or recover your funds should be treated as a red flag. The IRS has specifically warned about this tactic. When in doubt, call the IRS directly at 1-800-829-1040.

Remember how the IRS communicates. The IRS always initiates contact by mail — never by phone or email. If someone calls or emails claiming to be from the IRS about your ERC claim, it’s a scam.

IRS Enforcement Against ERC Fraud & Promoters

The IRS has made ERC fraud a top enforcement priority. Since the CARES Act passed, IRS Criminal Investigation has launched 500+ ERC-specific investigations covering more than $5.6 billion in alleged fraud, with 75 cases resulting in federal charges and convicted defendants averaging 21 months in federal prison.

The IRS isn’t just going after businesses. The Office of Promoter Investigations is actively pursuing the third-party firms that encouraged bad claims, and the One Big Beautiful Bill introduced new penalties specifically targeting ERC promoters. These include a $1,000 penalty per violation and a 20% penalty on erroneous refund claims.

How To Report ERC Scammers

If you’ve been targeted by an ERC scammer or abusive promoter, reporting them helps protect other businesses and may help your own situation.

The Bottom Line On ERC Scams

ERC scams didn’t end when the filing window closed. The latest threat isn’t someone trying to get you to file a fraudulent claim. It’s someone offering to rescue you from one.

If you have concerns about your ERC claim, the only person you should be talking to is a licensed CPA or tax attorney. Not a cold caller, not an unsolicited email, and not another third-party ERC service.

Stay skeptical, stay informed, and when in doubt, go straight to the source by visiting the IRS website or calling the IRS directly.