ERC Mills: Warning Signs You Worked With a Bad Filer

During the ERC boom, thousands of companies popped up promising easy refunds with minimal documentation. These 'ERC mills' filed billions of dollars in questionable claims—and many have now disappeared, leaving their clients to face IRS audits alone. If you're wondering whether your ERC preparer was legitimate, here are the warning signs to watch for.

What is an ERC Mill?

An ERC mill is a company that aggressively marketed Employee Retention Credit services using high-pressure tactics and questionable eligibility determinations. These operations prioritized volume over accuracy, filing as many claims as possible with minimal due diligence.

The IRS has identified ERC mills as a major source of improper claims, and claims filed by known mills are being targeted for systematic review.

Warning Signs You Used an ERC Mill

Review your experience with your ERC preparer. The more of these signs you recognize, the higher your risk:

• Unsolicited contact: They reached out to you through cold calls, texts, emails, or social media ads promising guaranteed refunds.
• Claimed everyone qualifies: They said virtually every business qualifies for ERC without reviewing your specific situation.
• Contingency fees: They charged a percentage of your refund (often 15-30%) rather than a flat fee for professional services.
• No documentation review: They didn't ask for or review government orders affecting your business, gross receipts records, or payroll data.
• Quick turnaround promises: They promised fast refunds without thorough analysis of your eligibility.
• No CPA or attorney involved: The company had no licensed tax professionals involved in evaluating claims.
• Aggressive revenue decline claims: They claimed you qualified based on gross receipts decline without proper calculations.
• Vague supply chain arguments: They used generic 'supply chain disruption' reasoning without specific documentation.

Red Flags in Your Claim

Look at the actual claim that was filed on your behalf:

• Claimed all eligible quarters: Your claim covers every possible quarter (Q2 2020 through Q3 2021) without clear justification for each.
• Maximum wage amounts: The claim uses the maximum $10,000 per employee per quarter without supporting payroll documentation.
• Generic eligibility language: The supporting documentation uses boilerplate language not specific to your business.
• No copies provided: You never received copies of the Forms 941-X filed on your behalf or the supporting documentation.
• Can't reach the company: The preparer's phone is disconnected, website is down, or emails bounce.

What to Do If You Used an ERC Mill

If you recognize these warning signs, take action now:

1. Get your IRS transcripts: Request your business tax transcripts to see exactly what was filed in your name.
2. Retrieve your documentation: Contact your payroll provider for copies of Forms 941-X. Gather any paperwork you still have from the preparer.
3. Assess your actual eligibility: Work with a qualified professional to determine if you legitimately qualified for the ERC.
4. Consider withdrawal: If your claim is still unprocessed and you don't think you qualified, withdrawal may be your best option.
5. Prepare for audit: If you've already received the refund, prepare your defense documentation now—before the IRS contacts you.

IRS Actions Against ERC Mills

The IRS is aggressively pursuing ERC mills and their clients:

• Criminal investigations: Over 545 criminal investigations have been opened, with many targeting mill operators.
• Promoter penalties: The IRS is pursuing promoter penalties against companies that made false statements about ERC eligibility.
• Client audits: Claims filed by identified mills are being flagged for automatic audit.
• Civil lawsuits: The DOJ has filed civil suits to shut down ERC mills and recover fees.