Beware of Those Bearing ERC Gifts
The Employer Retention Credit (ERC) has proven to be a valuable device in the array of Covid stimulus tools. ERC is a refundable credit against payroll taxes aimed at businesses that saw a reduction in receipts but retained their payroll during Q2-Q4 of 2020 and Q1-Q3 of 2021. It can provide for credits up to $5,000 per individual in 2020 and $7,000 per individual per quarter for those qualifying in 2021.
We are regularly hearing from clients that they are being contacted via phone or email by ERC consultants telling them that they qualify and can receive thousands in credits. Be leary! How would someone you have never discussed your business with know that you qualify? These firms generally take a percentage of the credit obtained as their fee and as a result are incentivized to take risky positions regarding qualification for the credit. The ERC rules are extremely complex and not all guidance issued is overtly clear. For instance, the most ambiguous qualifier is a supply chain disruption that resulted in economic damage. Nearly everyone experienced a supply chain disruption in 2020 and 2021…but was it enough to qualify for the credit and can all the facts and circumstances required be documented? Keep in mind that by allowing an email/cold call consultant to process your claim, you will allow them a view of your financial data and all of your employee information.
The Treasury Inspector General for Tax Administration (TIGTA) issued a report on August 31 that indicated the IRS has identified 11,096 suspicious claims that resulted in more than $2 trillion in credit claims. ERC fraud is definitely on the IRS’ radar. The American Rescue Plan Act of 2021 extended the statute of limitations for the ERC from the normal three years to five years, thereby giving the IRS more time to process, evaluate and audit claims.
The ERC is a huge incentive for many businesses. But when evaluating whether to claim, make sure you know who you are dealing with. Choose a familiar and reputable firm. Discuss a fixed/hourly fee rather than a contingent one. If your traditional accountant is not comfortable processing the claim, they will likely recommend someone else that can help. The statute to amend the first set of payroll tax returns eligible for ERC closes in July 2023. Time is of the essence…but if it sounds too good to be true, it probably is.
Kelly Jackson Hardy is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers, privately-held elevators and supply dealers, and cooperatives. Kelly is a principal with CliftonLarsonAllen in Princeton, Illinois, as well as a regular speaker at tax and estate planning seminars. Kelly was raised on a hog, row crop and cattle farm in central Illinois and has been involved in the ag industry her entire life. Kelly, her husband, and two sons are active in 4-H and operate a small feeder calf operation and pumpkin business.
Thank you, Kelly, for the heads up. I had my accountant send me the appropriate 941 forms but both of us were leery with the company “Innovation Refunds”. I stopped the process and will wait to see if I qualify some other day with a company I know. Haven’t got that far yet.