The AICPA and other professional associations have received numerous reports concerning the rise of Employee Retention Credit (ERC) vendors, many of whom are unlicensed or otherwise unqualified, promising windfall tax savings that go beyond what businesses are legally entitled to claim. Indeed, we as practitioners have directly received reports from clients who have been approached by such vendors and have conveyed or misrepresented rules that govern claiming of the credit. It has been reported that the IRS has already assigned an expanded contingent of revenue agents to examine taxpayers who have claimed the credit, so it is important to ensure that any position taken is defensible and can stand up against IRS audit. Additionally, the statute of limitations for claiming the credit has been extended from the standard three years up to five years.
In general, there are two possible bases for claiming the credit. The first basis is a certain reduction in gross receipts between calendar quarters in 2019 vs. 2020, and the second basis is a full or partial suspension of business by order of government shutdown. The IRS has been continually updating FAQs on their website to further clarify how to determine qualification on the second basis as it has been the source of some confusion. We have run qualification analyses for many of our clients, and we urge our clients to notify us prior to claiming the credit if approached by ERC vendors. We do not wish to discourage otherwise eligible taxpayers from properly claiming the credit or from working with an external “specialist,” and we will happily coordinate with them to ensure the credit is defensible and able to stand up against IRS audit.
If you have any questions, please contact us at [email protected] or call 858-565-2700.