The new business of tax credit companies & its dangers

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There's a new industry popping up... which consist of companies selling tax credit calculations to your tax clients.

My own company got at least 3 pre-recorded calls in the last week, promising us a generous ERC credit ... for which we do not qualify.

Other clients got emails about the R&D tax credit, especially if they were in software development biz.

All a company has to do is give the tax credit companies their financial information. And for a percentage of the calculated credit, these companies charge a fee of sometimes up to 20% of the credit as calculated by them. The tax credit company takes the fee ... and may be gone soon after or even before the tax returns are filed for which they do not bare any responsibility, a phenomenon I noticed after googling websites of some of the tax credit companies. The tax credit company doesn't prepare returns, they just calculate a promised tax credit. They have zero responsibility for what is being put on a return ... by you, the return preparer.

Your client paid $10K to a tax credit company, and if your client doesn't qualify for the credit, your client will balk at you. "But I paid a company to calculate this credit and you say I'm not eligible?" Yes, paying tax credit companies doesn't mean the tax credit company was right. All it means is that they got paid for a calculation, maybe amending a 941 in case of an ERC.

Tax credit companies will now pop up at even the hint of a potential tax credit. It's a business that carries zero responsibility for the ultimate document that does: a tax return.

Protect yourself by updating your engagement letter that any credits calculated by third parties are NOT reviewed nor audited and that the third party is responsible. You hold zero responsibility for these third party calculated credits.

I'm not saying that some of tax credit companies aren't legitimate and do an excellent job. But with so much money to be made, up to 20% of a calculated tax credit by a company that has zero responsibility for the returns that reports the credit ... it's bad news for your client, bad news for return preparers. Taxing agencies have been put on alert by the increase of R&D credits, ERC credits ,which typically means an increased audit risk for all companies taking tax credits.

Protect your clients by sending them an email to inform them about the new industry of tax credit companies. And update your engagement letter.

The other item we all should be aware of is that opting out of having your data sold, only goes into effect when you submit the form. Most people don’t even submit an opt-out form. And if they do, it’s after they’ve engaged in business with the tax credit company… which means that their data has already been sold to who knows how many third party providers, affiliates, marketing companies ...
 

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