Page 12 - BusinessWest January 23, 2023

The Employee Retention Credit and You
Determining Whether a Business Qualifies Can Be Complicated
BY SCOTT FOSTER & JACOB KOSAKOWSKI
“Perhaps the most complicated facet of determining eligibility under ERC relates to how its provisions interact with the Internal Revenue Code’s special aggregation rules for businesses.”
Business owners have been bombarded recently with solicitations from firms offering to help them realize millions of dollars through the
IRS’s Employee Retention Credit (ERC) program, which was included in the CARES Act adopted in the early phases of COVID-19. The CARES Act also con- tained the popular, and well-documented, Paycheck Protection Program (PPP), with forgivable loans that kept many businesses afloat.
Originally, if a business received a PPP loan,
it was not eligible to receive ERC. The initial IRS guidance on this could not have been more clear: “an employer may not receive the Employee Reten- tion Credit if the employer receives a PPP loan that is authorized under the CARES Act. An Eligible Employer that receives a PPP loan, regardless of the date of the loan, cannot claim the Employee Reten- tion Credit.”
However, subsequent legislation, namely the Tax- payer Certainty and Disaster Tax Relief Act of 2020, enacted Dec. 27, 2020; the American Rescue Plan Act (ARPA) of 2021, enacted March 11, 2021; and the Infrastructure Investment and Jobs Act, enacted Nov. 15, 2021, greatly expanded eligibility for ERC.
While some of these firms are offering legitimate services and will help businesses file accurate and legitimate claims for ERC, business owners should proceed with extreme caution due to several fac-
tors: the very complex rules regarding eligibility for an ERC, the IRS’s near-automatic acceptance of these filings (and payment of the credit, of which the firm usually collects 25% or more), the very strong likelihood that these filings will be audited in years to come (the IRS has up to five years to audit ERC returns), and the equally strong likelihood that the less-reputable ERC firms will have closed their doors and have liquidated all assets before those audits are completed, leaving the business holding the prover- bial bag for tax penalties, fines, and interest.
The IRS issued a warning on Oct. 19, 2022, stat- ing that some firms “are taking improper positions related to taxpayer eligibility for and computation of the credit.” The IRS warning goes on to explain that firms “often charge large upfront fees or a fee that is contingent on the amount of the refund and may not inform taxpayers that wage deductions claimed on the business’ federal income-tax return must be reduced by the amount of the credit.”
Determining whether a business qualifies for ERC can be quite complicated. If the business was fully or partially suspended due to a governmental order lim- iting commerce, travel, or group meetings related to COVID, then it may
qualify for the time
during which it was ERC
SCOTT FOSTER
JACOB KOSAKOWSKI
so suspended. If
Continued on page 13
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12 JANUARY 23, 2023 << FEATURE >>
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