|
Getting your Trinity Audio player ready...
|
When the Coronavirus Aid, Relief, and Economic Security Act or “CARES Act” was passed by Congress on March 25, 2020, it was intended “to provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.”
The legislation also brought with it ample opportunity for abuse and fraud.
Among the many components of the CARES Act was a refundable tax credit for businesses that continued to pay employees after businesses either shut down or had significant declines in gross receipts due to Covid-19 mandates. The Employee Retention Tax Credit (ERTC) was one of the many relief provisions included in the CARES Act intended to encourage small businesses to keep employees on staff rather than furloughing them or laying them off. The credit was equal to 50 percent of qualified wages paid to an employee between March 12, 2020 and January 1, 2021, including qualified health plan expenses. The maximum amount of qualified wages that could be claimed was $10,000, which means the maximum credit for any one employee was $5,000.
The ERTC was (well, is) fully refundable – applied to the portion of payroll taxes paid by the employer. The Internal Revenue Service (IRS) allowed eligible businesses to receive an advance payment on their credit, thus alleviating liquidity concerns held by many of these businesses.
Employers can claim the ERTC for 2020 through April 15, 2024 and the credit for 2021 until April 15, 2025.
***
As with so many components of the CARES Act, though, the ERTC has been abused. On March 7, 2023, the IRS issued a warning about the ERTC as part of their annual ‘Dirty Dozen‘ list of tax scams. The warning was issued “following blatant attempts by promoters to con ineligible people to claim the credit.”
The warning highlighted schemes from ‘promoters’ who have been blasting ads on radio and the internet touting refunds involving these tax credits. According to the IRS release, “these promotions can be based on inaccurate information related to eligibility for and computation of the credit.”
Accountants who follow the rules refer to these companies as “tax credit mills” – and are growing increasingly frustrated by allegedly fraudulent claims on behalf of their clients come tax season.
One company facing scrutiny related to ERTCs is Florence-based Synergi Partners. Founded in 2019 by Jim Brown and Tim Norwood — both natives of the Pee Dee region – Synergi has faced a number of federal lawsuits regarding its alleged mishandling of ERTCs. One such lawsuit was filed last summer by Pennsylvania-based Marywood University. According to that complaint, Synergi erroneously advised the school it qualified for a $6 million pandemic relief tax credit – seeking more than $900,000 in fees for this faulty advice.
(Click to View)
According to the complaint (.pdf), Marywood’s licensed accountants reviewed the agreement with Synergi Partners and found the University did not qualify for the $6 million. Despite this finding, Synergi still sought payment for its $900,000 contingency fee.
According to Marywood’s attorneys, it was represented and understood that the “contingency fee” would only be payable if the school qualified for the tax credit.
Contingency fees – or fees based on the amount recovered – are generally considered illegal for tax professionals . There are exceptions, but for most original or amended returns – and audits – such arrangements are verboten because they could be used to incentivize professionals to illegally bolster the filings of their clients. As such, contingency fees are generally not an allowable way to structure billing in a certified public accountant’s practice.
“Commissions and contingent fees are prohibited if the CPA is engaged in an audit or compilation and/or examination of financial information such as preparing an original or amended tax return or claim for a tax refund,” the American Institute of CPAs noted.
Nonetheless, last October the IRS issued a warning stating that “third parties often charge large upfront fees or a fee that is contingent on the amount of the refund.”
These third parties often fail to “inform taxpayers that wage deductions claimed on the business’ federal income tax return must be reduced by the amount of the credit.”
A copy of Synergi Partner’s client services agreement was filed as an exhibit in another federal lawsuit filed against the company in South Carolina last August by Dynamic Integrated Services, LLC. This agreement clearly stated the “Client (Dynamic Integrated Services, LLC) has the obligation to pay Synergi a 15 percent contingency fee in accordance with the terms of this Agreement based on the amount of Credits calculated for Client and reflected in the Tax Credit Package.”
(Click to View)
The South Carolina lawsuit (.pdf) indicated Rodney Rich — a well-known Pensacola financial planner — had referred the small business to Synergi Partners. When representatives of Dynamic expressed hesitation in utilizing the company’s services, Rich allegedly encouraged them to proceed with the engagement – claiming Synergi had “insider knowledge with the ability to obtain more credits for businesses than they would otherwise be able to obtain via other means,” according to the lawsuit.
Despite their initial hesitation, Dynamic entered into an agreement with Synergi based on Rich’s strong recommendation.
Following an introductory call, Synergi emailed marketing materials to Dynamic’s general counsel, Kimberly Sullivan. Sullivan claimed in an affidavit (.pdf) that the materials Synergi provided boasted of the firm’s work “with top U.S. legal firm and maintain key connections with Legislators in D.C.” The materials further claimed Synergi was comprised of an “[e]xecutive team of veteran tax credit experts [with] more than 200 years of combined knowhow.”
After three months of delays and frustration, on August 6, 2021, Dynamic claims to have discovered the true nature of Synergi’s business practices. According to its lawsuit, Synergi Partners used representatives to market its services to other businesses (i.e. “referral sources”) for a five percent commission of Synergi’s collection of the contingency fees.
Rodney Rich is believed to be one of many of Synergi’s “referral sources.”
On September 3, 2021 — a full week after Dynamic terminated its agreement with Synergi — the company sent the tax credit package it had prepared for Dynamic. According to the complaint, the package sent to Dynamic included credits for the second quarter of 2021 – even though Synergi never gathered Dynamic’s payroll information for June 2021. Without that information, Synergi should not have been able to accurately calculate Dynamic’s credit entitlement for the second quarter of 2021.
On September 8, 2021, Synergi sent two invoices to Dynamic totaling $205,013.64. Before sending the invoices, Synergi allegedly failed to provide its eligibility analysis for the ERTC – which was a requirement under the purported agreement and was a representation from its marketing and promotional materials, according to the filing.
(Click to View)
(Via: U.S. District Court)
“(If) Dynamic should file for the calculated ERTC without any assurance Dynamic was entitled to the ERTC … Dynamic (would be) at risk of submitting a false or inaccurate tax filing,” the lawsuit claimed. “Worse still, regardless of whether Dynamic filed for the calculated ERTC, it is (Synergi’s) position that Dynamic was required to pay the so-called contingency fee immediately upon receipt of the Tax Credit Package, again without either the required eligibility analysis or any assurance Dynamic was even entitled to the ERTC.”
As with the Marywood University complaint, the Dynamic lawsuit basically accused Synergi of asserting dubious ERTC eligibility – and then demanding payment for this allegedly erroneous advice.
The complaint did highlight a disclaimer in Synergi’s client services agreement which reads as follows: “Synergi DOES NOT provide tax advice, tax filings, or CPA [certified public accounting] services. Synergi is not a tax preparer or accountant and therefore explicitly disclaims any and all responsibility for preparation of a Client’s federal and state tax returns. Synergi will not render or be required to render any service that could be interpreted as the practice of accounting.”
Is this disclaimer a work-around that these alleged “tax credit mills” are utilizing to charge contingency fees?
Synergi Partners’ portfolio expands across multiple states and recently became international with an office based in Puerto Rico. The company claims to research “each piece of tax credit legislation to understand the qualifications for the credit opportunity in-depth.”
“There are many companies that offer tax credit and incentive consulting services – there are very few that are 100 percent focused on it,” the company claimed. “Synergi’s proprietary methodology is consistent, proven, and defendable.”
According to the IRS, the agency is stepping up enforcement action involving these ERTC claims. Businesses filing for them “should be aware they are ultimately responsible for the accuracy of the information on their tax return.”
If you believe you know of fraud related to ERTC – or any fraud related to tax credits – you should mail or fax a completed Form 14242 (and any supporting materials) to the IRS Lead Development Center in the Office of Promoter Investigations:
Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Road
Laguna Niguel, California 92677-3405
Fax: 877-477-9135
As we continue digging into those allegations, I would remind everyone reading this article that FITSNews has an open microphone policy which encourages any individuals or institutions named in our reports to address our audience directly.
Unlike other media outlets, we are happy to publish responses unedited and in their entirety.
***
ABOUT THE AUTHOR …
Jenn Wood is FITSNews’ incomparable research director. She’s also the producer of the FITSFiles and Cheer Incorporated podcasts and leading expert on all things Murdaugh/ South Carolina justice. A former private investigator with a criminal justice degree, evildoers beware, Jenn Wood is far from your average journalist! A deep dive researcher with a passion for truth and a heart for victims, this mom of two is pretty much a superhero in FITSNews country. Did we mention she’s married to a rocket scientist? (Lucky guy!) Got a story idea or a tip for Jenn? Email her at jenn@fitsnews.com.
***
WANNA SOUND OFF?
Got something you’d like to say in response to one of our articles? Or an issue you’d like to proactively address? We have an open microphone policy here at FITSNews! Submit your letter to the editor (or guest column) via email HERE. Got a tip for a story? CLICK HERE. Got a technical question or a glitch to report? CLICK HERE.
