Here Ye; Here Ye: Calling all ERC Claims!
HERE YE; HERE YE: CALLING ALL ERC CLAIMS!
I know we’ve all been hearing about the Employee Retention Credit (ERC) for a couple years now, but the bandwagon is reaching a fever pitch. I am even receiving unsolicited letters and notices about how I can get thousands of dollars back from the IRS for my firm. All the notices, TV commercials, advertisements, etc. make it sound so easy and that any business is eligible.
I recently attended a professional conference provided by the Internal Revenue Service—my first ever and it was surprisingly good! The IRS Commissioner Danny Werfel spoke at the conference and, sure enough, the ERC program was one of the top highlights he discussed. He stated that “Taxpayers should beware of potentially abusive arrangements and promoters pushing them. People should seek out trusted, reputable tax advisors and not be fooled by aggressive advertising and sales pitches.” These overly aggressive “ERC Mills” have now hit the IRS’s Dirty Dozen tax scams.
What is the truth?
While the ERC is real, aggressive promoters are wildly misrepresenting and exaggerating who can qualify for the credits. Without going into all the dry details of the legislation and guidance that has been enacted and published, suffice it to say that there have been four separate pieces of legislation[1] that established and modified the ERC since its inception in March 2020. It is very complicated and the guidance that followed the legislation took years to be written and provided to tax professionals.
Many of us who are CPAs took the patient-waiting approach to begin working on clients’ ERC claims, as the rules were evolving.
What is an Eligible Employer
- Employers of any size
- Engaged in trade or business
- Pays wages in a calendar quarter in which
- Business operations fully or partially suspended due to COVID-19 government orders; OR
- Business has significant decline in gross receipts
- 2020
- Includes tax-exempt orgs
- Excludes government entities
- 2021
- Includes tax-exempt orgs
- Includes certain government entities (colleges, universities, hospitals & medical care providers)
- Recovery start-up business – special rules
- 2020
Terminology
As with all legislation and regulations, terminology is critical. This letter isn’t designed to provide you with all the definitions, but be assured that we have since been provided numerous definitions and criteria for such things as what constitutes a recovery start-up business, government order, aggregation of related business groups, full or partial suspension of business operations, gross receipts, qualified wages, etc.
The 1st Big Test: Gross Receipts Criteria
The first test I consider in evaluating businesses for ERC initial eligibility is the Gross Receipts Test. These criteria differ from 2020 to 2021 and were affected by legislation retrospectively. At a very high level the criteria are
- 2020
- Decline of at least 50% of gross receipts (total revenue/income) comparing a 2020 calendar quarter to the corresponding 2019 calendar quarter
- Credit ends in the quarter in which gross receipts reach 80% when compared to the corresponding 2019 calendar quarter
- 2021
- Decline of at least 20% of gross receipts compared to the corresponding 2019 calendar quarter
Qualified Wages & Credit Rate
Qualified wages are gross wages subject to Social Security taxes and allocable group health care benefits (HDHPs, HRAs, FSAs; excluding HSAs and QSEHRAs)
- 2020
- $10,000 annual limit per employee
- Employer with 100 or fewer full-time employees, all wages
- Credit rate of 50% of qualified wages
- Max credit of $5,000 per employee
- 2021
- $10,000 per quarter limit per employee
- Employer with 500 or fewer full-time employees, all wages
- Credit rate of 70% of qualified wages
- Max credit of $21,000 per employee
Interaction of ERC & PPP
As you’d expect, the government does not permit “double-dipping”. This means that if a business received the PPP loan and it was forgiven, the business cannot use the same payroll expenses for both the PPP loan forgiveness and to claim the ERC. This is likely to be one of the greatest risk areas for businesses who claim the ERC. The IRS has already put the public on notice that they expect high incidence of fraud in this area and will be conducting extensive audits.
Timeline for Amended Payroll Tax Returns to Claim ERC
The deadline to file amended payroll tax returns in order to claim the ERC has also changed from the initially published deadline. The IRS recognized that all the subsequent changes and the delayed guidance regarding how to properly apply for the ERC caused undue hardship for businesses to prepare and submit their amended payroll tax returns. Currently the deadlines to claim ERC for all quarters in:
- 2020, amend payroll tax returns by April 15, 2024
- 2021, amend payroll tax returns by April 15, 2025
In addition to providing the additional time to file the amended returns, the IRS has an additional two years from issuance of any refund to seek repayment, even if the statute of limitations has expired.
What are We Doing for You?
Symmetry is currently evaluating all our clients who had payroll in 2020 and 2021 for the initial eligibility criteria. This is a complimentary initial service we are providing to you. Once we have completed the eligibility analysis, we will be reaching out to you individually to inform you of our findings and whether we believe you have any quarters in 2020 and 2021 for which you may be eligible.
Once you agree that you’d like us to proceed on your behalf, we will prepare an engagement letter outlining the detailed services we will provide and the related fees. We will coordinate with you to perform the necessary 2nd level analyses to determine the amount of credit for which you are eligible and prepare the amended Forms 941 for each quarter. Because this is such a high audit risk area and we know what types of documentation the IRS is likely to request should your amended returns be selected for review or audit, we will be performing due diligence and documenting the process, analytical procedures and all source documents used in our work.
Symmetry’s Timeline
We expect to be reaching out to all our clients during quarters three and four of 2023 to notify you of your initial eligibility and to proceed for those clients who are eligible for the ERC. So, keep your eyes on your inbox!
[1] Coronavirus Aid, Relief, and Economic Security (CARES) Act (3/2020); Taxpayer Certainty and Disaster Relief Act of 2020 (12/2020); American Rescue Plan Act of 2021 (3/2021); Infrastructure Investment and Jobs Act (11/2021)
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Posting Date: August 11, 2023