Roth&Co’s recent ERC webinar, presented by Tax Attorney Ahron Golding, Esq., answered frequently-asked questions, provided authoritative guidance, and cleared up much of the confusion and misinformation surrounding the Employee Retention Credit (ERC). Click here to watch the recording, or read a brief summary below:
The webinar reviewed general principles and prepared businesses for a discussion with their professional advisors about how their specific organizations could benefit from the ERC. Business owners were encouraged not to make tax decisions based simply on something heard on a webinar or online, and instead to review their specific situations with a tax professional.
The history behind the ERC is simple. The government wanted to encourage businesses to keep paying their employees throughout the Covid crisis, even though those businesses were hurting from having been suspended by government order or from experiencing a significant decline in revenue. The language of the CARES Act, ERC Provision is excerpted here.
Quick Facts
• If a business is eligible for the maximum credit offered by the ERC, it can claim up to $5k per employee for 2020 and up to $21k per employee for 2021.
• There was a major law change over two years ago (Dec 2020) that allows businesses to apply for the ERC even if they received the PPP – as long as there is no double-dipping on the same funds.
• There are no new updates regarding eligibility since then, and the old rules regarding partial closure still apply.
• The ERC is a credit on a business’ payroll taxes; there is no danger of the funds running out.
• Dates to be aware of: The way to apply for an ERC is by filing a 941X (an amended payroll tax return). The deadline to claim the 2020 credit is April 15, 2024, and the 2021 credit, April 15, 2025.
• Regarding “partial suspensions,” it is possible to be eligible for the ERC even without a decline in receipts.
Eligibility is based on whether a business was shut down (fully or partially) by government order, or had a decline in gross receipts for that quarter compared to 2019. Partial closures may have included limitations on operations or mandatory modifications in a business’ processes. The closures must have been due to government order – not merely recommendation. Specific circumstances regarding closures and other ERC details are addressed in the IRS’ guidelines titled Notice 2021-20 and can be found here. You can read more about the specifics of partial closures in questions 17 and 18 on pages 34-40, excerpted here.
Take special note of the language in question 18 of the notice regarding what factors should be taken into account in determining whether a modification required by a governmental order has more than a nominal effect on business operations for ERTC purposes:
“Whether a modification required by a governmental order has more than a nominal effect on the business operations is based on the facts and circumstances. A governmental order that results in a reduction in an employer’s ability to provide goods or services in the normal course of the employer’s business of not less than 10 percent will be deemed to have more than a nominal effect on the employer’s business operations…”
The ERC statute is relatively new. There is no history or case law to tell us how the determination of ‘partial closure’ will eventually be defined by the courts. It would be wise to consult a knowledgeable tax professional who may be able to provide your business with a tax opinion based on your unique facts and circumstances, and who can support your claim in case it is challenged in audit.
The IRS has started auditing businesses who have filed for the ERC and has trained teams of auditors specifically for this purpose. You can see the training manual here. The audits focus on eligibility, substantiation of the amounts claimed, and whether an amended income tax return was filed to correct any overstated wage deduction, where required.
Penalties for erroneously claiming the ERC are costly and could mean potential 20% accuracy penalties and possible criminal liability if the government can prove an intent to defraud. Note that if your business is awarded an ERC, it may have to file an amended return for the period it received the credit in order to reduce the deduction it claimed – even if the credit has not yet been received.
Businesses that filed for the ERC and are still waiting to see their credit come through can call their congressman and ask that he reach out to the IRS for a status report on its progress. Alternately, they can contact the Taxpayer’s Advocate Services (TAS), whose representatives are tasked with assisting taxpayers experiencing tax issues.
This summary has been presented for educational purposes only and does not constitute a comprehensive study of the ERC tax laws or serve as a legal opinion or counsel.
