One of the most prominent areas under scrutiny by the IRS today is the Employee Retention Credit (ERC). Intended to help businesses retain employees during economic hardship, the ERC has become a breeding ground for fraud, with companies falsely claiming credits they are not entitled to. For CPAs, this issue presents a significant ethical dilemma: balancing the needs of their clients with the legal and ethical standards surrounding ERC qualifications.
The Ethical Dilemma for CPAs
Many business owners view the ERC as “free money” they deserve, often underestimating the strict requirements needed to qualify. While it’s understandable that businesses, especially those struggling to recover from the pandemic, would look for every possible lifeline, CPAs face the challenge of ensuring that their clients only claim credits for which they are genuinely eligible.
This is where ethics come into play. CPAs must navigate the fine line between supporting their clients’ financial needs and maintaining professional integrity. Offering incorrect advice, even unintentionally, can lead to severe financial penalties, legal consequences, and damage to the CPA’s reputation.
Voluntary Disclosure and Transparency
A key aspect to consider is the IRS’s Voluntary Disclosure Program, which offers businesses the opportunity to correct past mistakes in ERC claims. For CPAs, this provides an ethical pathway to address potential errors while protecting their clients from harsher penalties. Proactively guiding clients toward this program demonstrates a commitment to transparency and compliance—cornerstones of ethical business practices.
Practical Steps for CPAs
- Education: Educating clients about the true nature of the ERC and the risks of fraudulent claims is essential. CPAs should explain the qualifications and emphasize the importance of legal compliance.
- Due Diligence: Rigorous documentation and a thorough assessment of each client’s eligibility are crucial. Relying on clear guidelines and maintaining detailed records can prevent errors and protect against IRS scrutiny.
- Encouraging Voluntary Disclosure: For clients who may have improperly claimed the credit, encouraging voluntary disclosure can help rectify the situation and reduce penalties.
Concluding Thoughts
As a business ethics speaker, I believe the ERC controversy underscores the importance of ethical decision-making in professional services. CPAs must prioritize integrity, transparency, and compliance above short-term gains. Balancing client needs with ethical obligations may be challenging, but it is necessary to protect both businesses and the profession as a whole from the consequences of fraudulent practices.
