The IRS recently issued a press release warning employers about third parties promoting improper Employee Retention Credit (ERC) claims. Specifically, the IRS noted that taxpayers should be “cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true.”
AGH warned clients for months to carefully consider the risks before giving into the lure of “easy money” promised by many ERC promoters. Unfortunately, profiteers moved quickly to take advantage of unsuspecting employers. As the IRS stated, these third-party promoters “often charge large upfront fees or a fee that is contingent on the amount of the refund.”
What is the ERC?
The ERC is a refundable tax credit designed for businesses that continued paying employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020, to December 31, 2021. Eligible taxpayers can claim the ERC on an original or amended employment tax return for a period within those dates.
To be eligible for the ERC, employers must satisfy one of the following conditions:
- Experienced a significant decline (50%) in gross receipts during 2020 compared to 2019 or a reduction in gross receipts (20%) during the first three quarters of 2021, or
- Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19 during 2020 or the first three quarters of 2021, or
- Qualified as a recovery startup business for the third or fourth quarters of 2021.
What you need to know about these schemes
The tax credit promoters conveniently ignore the government order requirement for suspended operations. They frequently claim that any effect of COVID on the employer or their supply chain will qualify the employer for ERC.
The IRS also mentioned that aggressive tax credit promoters “may not inform taxpayers that wage deductions claimed on the business’ federal income tax return must be reduced by the amount of the credit.” That requires amending 2020 and/or 2021 tax returns and paying tax plus fees to tax preparers.
The IRS has begun to audit ERC claims aggressively. Employers must consider that they, not the ERC promoters, are responsible for the accuracy of their ERC claims. The employer will be the party required to repay unsubstantiated claims, plus penalties and interest.
You may be eligible for ERC, but the analysis and decision-making are not as simple as these promoters would have you believe. AGH professionals can help evaluate your specific facts and circumstances to make an informed decision about your ERC eligibility.
If you have questions about your ERC eligibility or concerns about previously filing for the ERC, contact John Trowbridge using the information below.
NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.
Senior Vice President
With more than 30 years’ experience in public accounting and an intensive tax background in tax planning and return preparation, John manages client relationships and focuses on the firm prospective's clients, assists industry teams in developing new prospects and meets with clients. John’s expertise includes federal and international tax strategies, growth incentives, wealth transfer and estate planning. He has worked closely with manufacturers and mid-size companies and their owners/leadership providing a variety of profit-building tax strategies.
John earned a bachelor of business administration from Wichita State University and is involved in numerous professional organizations including: Kansas Society of Certified Public Accountants (KSCPA), American Institute of Certified Public Accountants (AICPA), Wichita State Auditing and Accounting Conference planning committee, Kansas Family Business Forum, Wichita Manufacturers Association Executive Board, Risk Management Association Board of Directors and the Kansas Global Trade Service steering committee for the Brookings Institute Global Cities Initiative.