How Innovation Refunds works

On its website, Innovation Refunds makes it clear it is not a tax professional.

The company is positioned as a middleman between small business owners and independent tax attorneys. Innovation Refunds markets to clients, determines if they are viable candidates for the credit and then collects businesses’ documentation. For its services, it charges a contingency fee, which amounts to 25% of the refund once it’s paid out to the business, according to its website.

A person walks by a row of stores closed during the outbreak of Covid-19 in New York, March 28, 2020.

Innovation Refunds does not, however, make the final decision on eligibility for the credit or determine how much money a business should receive. For this, it says it contracts independent tax attorneys and professionals. 

Some former employees said this could insulate Innovation Refunds from potential liability if ineligible businesses claimed the credit. Innovation Refunds doesn’t sign off on the returns submitted to the agency — the independent tax partners and small businesses do, according to documents viewed by CNBC. The company also says it provides audit protection for small businesses, but would not outline what that entails when asked for comment.

Innovation Refunds declined to participate in this story.

A former employee in a leadership position said, in their opinion, because of this business model “management was encouraged to take aggressive tax positions on qualifications in order to maximize their contingency fee.” Two other former workers echoed this view, saying the company put through businesses whose eligibility fell into a gray area. This was not the case, however, for those who were outright ineligible, as those businesses were rejected, the two former workers said.

“Get as many deals through the door and let the IRS decide who was qualified,” as one former midlevel accounting and finance employee put it.

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