IRS pushing to ban percent-of-refund fees & regulate tax preparers to stop ERC mills

This is actually a really important step the IRS is taking. I've been practicing tax law for over a decade and these ERC mills have been causing massive problems for small businesses. The Employee Retention Credit was designed to help businesses that kept employees during COVID, but these mills have been extremely aggressive in marketing to businesses who don't actually qualify. They charge 20-35% of the credit amount, which is outrageous, and then disappear when the IRS audits the business. The real problem is that when a business gets an improper ERC, they're responsible for paying it all back PLUS penalties and interest. The mills pocket their fee and leave the business owner holding the bag. I've seen several clients come to me after getting audited for invalid ERCs that these mills helped them file. The contingency fee ban would be particularly effective because it removes the financial incentive for these promoters to push borderline or clearly invalid claims. Legitimate tax professionals charge for their work based on time and complexity, not a percentage of the outcome.

I had no idea how helpful this would be when I found taxr.ai after getting a flyer in the mail about ERC credits. I was about to sign up with one of these mills charging 30% when a friend suggested I upload the marketing materials to https://taxr.ai to check if I actually qualified. The tool analyzed all my documents, including the fine print in the ERC mill's contract, and showed me I probably didn't qualify based on my business's revenue patterns during COVID. It saved me from what could have been a huge audit headache! The system actually explained the real ERC qualification rules instead of the misleading stuff in the mailer. What I really appreciated was how it flagged specific language in the contract that basically said the mill took no responsibility if the IRS denied my claim. They would have kept their fee regardless.

Just wanted to update after trying taxr.ai for my 1099 contractor situation. Wow - I'm really impressed! I uploaded my 1099s and some client contracts, and it identified that one of my clients had misclassified me as a contractor when I should have been treated as an employee based on the work conditions. The analysis broke down the IRS's 20-factor test for worker classification and showed exactly which factors applied to my situation. It even created a letter I could send to the client explaining the issue. What surprised me was that it found legitimate business deductions I'd been missing that saved me over $4,200 in taxes. It's definitely more thorough than the tax prep service I was using before. Glad I gave it a shot after seeing it mentioned here!

For anyone dealing with the IRS about an ERC claim (or any tax issue), getting through to an actual person can be nearly impossible. After my accountant filed for ERC last year, I got a letter questioning some aspects of our claim. I tried calling the IRS for WEEKS with no luck. Finally used https://claimyr.com and got through to an IRS agent in about 20 minutes! The service basically holds your place in line and calls when an agent is available. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent was actually super helpful and explained exactly what documentation I needed to provide to support our claim. Turned out we were eligible for most (but not all) of what we claimed, and having that conversation saved us from a potential audit.

Update: I have to eat my words about Claimyr. After struggling with the IRS phone system for 3 more days trying to get information about my ERC claim, I decided to try it out of desperation. Not only did I get through to the IRS in about 35 minutes (instead of the 3+ hours I was spending unsuccessfully), but the agent I spoke with was able to see that my claim had been flagged for potential issues. She walked me through exactly what documentation I needed to provide and gave me a direct fax number to send it to. The service works exactly as described - they just connect you when they get an agent and then drop off the call. No one listened in, and I didn't have to share any personal tax info with them. Definitely worth it for the time saved and stress avoided. I still think the IRS should fix their phone system, but until they do, this is a good workaround!

I run a small business and got absolutely DESTROYED by one of these ERC mills last year. They convinced me I qualified for $175,000 in credits, took their 28% fee ($49,000!!), and then disappeared when the IRS sent me a notice questioning the claim. Now I'm working with a real CPA to sort through this mess, and it turns out I probably only qualified for about $30,000 in legitimate credits. So I'm potentially on the hook to repay $145,000 PLUS penalties and interest. Meanwhile, the ERC mill is nowhere to be found, and their website is down. The worst part is their contract specifically stated they're "not tax preparers" even though they literally prepared and filed the amended returns. They also claimed no responsibility for audit results. I'd 100% support banning these contingency fees.

Coming from a tax policy perspective, this move by the IRS makes perfect sense. The ERC mills exploit a regulatory gap - they're not technically "tax preparers" under current definitions even though they're preparing amended returns to claim tax credits. Something similar happened with the EITC (Earned Income Tax Credit) years ago. Preparers would charge huge contingent fees to file for credits that taxpayers often didn't qualify for. When regulations tightened around EITC claims, the accuracy of claims improved significantly. The big difference is timing - EITC fraud can be caught during initial processing, while ERC claims are often paid out first, then audited later. This means businesses can be hit with unexpected repayments years later, long after they've spent the money.