ERC - Government Shutdown

Technical topics regarding tax preparation.
#1
IDCPA  
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So I have a client who has been in communication with an ERC mill. This is the email that was sent to him (redacted of course). This client is not being argumentative with me but I've told him I'm quite confident he doesn't qualify, but this is what I'm up against. Any chance I'm wrong that he doesn't qualify? (or more specifically that every business doesn't qualify as stated in the email), except perhaps for a few short days of shut down in Idaho (he has taken PPP):

Thank you for reaching out. We are happy to help you with your Employee Retention Tax Credit program process.

If a business qualifies under any one of the three tests below, it can receive up to $26,000 per employee if it had less than 100 employees in 2019 and up to $21,000 if it had less than 500 employees in 2019.
1. The Government Mandate Test: A trade or business was fully or partially impacted in any way, or had to reduce business hours, due to a government order (see detailed explanation below); or
2. The Reduction in Revenue Test: A business had a significant decline in gross receipts; or
3. Startup Business Test: A new business started after Feb. 15, 2020.

We haven't run across a business that doesn't qualify under the Government Mandate Test.

Under the Government Mandate test, a business that had its business operations "disrupted" by a federal, state, county, or city COVID mandate qualifies for the ERTC tax credits. A disruption is any government restriction that forced the business to alter its day-to-day operations.

Here are a few examples of business interruptions that, if caused by a government mandate (order), generally enable a business to qualify:

-Mandatory shutdowns (Governor Newsom's mandatory shutdown of all bars, wineries, nightclubs, and brewpubs on 3/15/20 and his "Stay at Home" order of 3/19/20.) note, author must operate in California. This client is in Idaho
-Limitations on the number of employees or guests allowed in the factory, warehouse, showroom, offices, lobby, etc.
-Restrictions on group meetings
-Decreases in hours of operation
-Reduction in services or goods offered to customers
-Interruption of any part of business operations
-Challenges finding and retaining employees
-Supply chain interruptions- Suppliers to business were unable to make deliveries of critical goods or materials
-Delayed production timelines caused by supply chain disruptions
-Projects were canceled or delayed
-Shifting of hours to increase sanitation of the business
-Inability to access equipment
-Limited capacity to operate
-Inability to work with vendors
-Inability to work as a vendor
-Inability to travel
-Missing of trade shows
-Forced cancellation of fundraising events (nonprofits)
-Inability to perform "elective" procedures (medical organizations)
-One or more locations of a multi-location business partially or fully shut down.
As you can imagine, it's hard to find a California business that doesn't qualify.

It's hard to imagine that your business didn't suffer from at least one of the examples above. If so, your business qualifies for the ERTC.

I see that you have three shops in Idaho. Please take a look at the list above and let me know of several interruptions that you experienced at any or all of your shops.

I work with XXXXX Law and Tax, LLC, and together we have worked with over 100 businesses on the ERTC program. In fact, XXXXX Law processed the ERTC claims for my business in XXXXX, CA.

I have attached several documents that you will need:

-Employee Information Document List: Items that XXXXX Law needs (uploading these should not take much time)
-Business Information Sheet: Basic questionnaire about the business entity (very simple);
-Engagement Agreement: Please sign and email back to us;
We have worked hard to make this a very simple process for the business owner and its representatives. Our team will do the complicated work of creating spreadsheets from the information provided and will calculate the amounts you are entitled to, taking into consideration your PPP information. Then, it's a matter of waiting for the checks from the Treasury.

Please let me know if you have any questions.

Best,
 

#2
JAD  
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The email from the ERC mill seems to indicate that any inconvenience causes the business to qualify for the ERC. What is the ERC mill's authority for this interpretation? How does that interpretation jive with the Notices and FAQs, which to the best of my knowledge is the most current guidance available?

https://www.irs.gov/newsroom/faqs-emplo ... -cares-act

For example, let's consider Q&A 17, 18, and 22 of Notice 2021-20. Taken together, we see that partial suspensions of business due to making required modifications applies only if the modifications have more than a nominal effect on the employer’s business operations. If an employer is subject to a government order for only part of the quarter, the employer is an eligible employer for the whole quarter, but only wages paid during the period of the government order are qualified wages.

The interruption has to be material, and wages don't automatically count for the credit. Wages count only during the period of impact.

See also FAQ 31 for essential businesses. Here is the example in that FAQ:

Employer A operates an auto parts manufacturing business that is considered an essential trade or business in the jurisdiction where it operates. Employer A's supplier of raw materials is required to shut down its operations due to a governmental order. Employer A is unable to procure these raw materials from an alternate supplier. As a consequence of the suspension of Employer A's supplier, Employer A is not able to perform its operations. Under these facts and circumstances, Employer A would be considered an Eligible Employer because its operations have been suspended as a result of the governmental order that suspended operations of its supplier.

The taxpayer shut down. This is much more than just being inconvenienced.


I have only begun to orient to this issue recently. I have one client that might be impacted. I would love to hear the responses of others who have more experience.
 

#3
IDCPA  
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I've done several, mostly Recovery Startup Businesses which are easy to qualify, a few that had a sufficient drop in gross receipts and a couple of restaurants that we determined had government restrictions that had a nominal impact and thus they qualified.

But I get more people every week telling me they've been told they qualify and/or their buddy in the same industry just got back $200K or whatever. It's extremely frustrating when I'm quite confident they don't qualify, they're being told they do (everybody qualifies....) and knowing if they apply for the credit they'll absolutely receive it..... subject to an audit that it's unlikely (I think) will ever happen.

The whole thing is extremely irritating. I researched the company backing this mill and they are a Kansas based law firm run by an individual "attorney/accountant" and she has legal credentials. How are they not just getting slammed for fraud.... which is what makes me wonder if I'm missing something.... I certainly don't think I am....
 

#4
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IDCPA wrote:(redacted of course).

Why redact the name of the ERTC mill?
Dave

Taxation is the price we pay for failing to build a civilized society. ~ Mark Skousen
 

#5
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[quote="IDCPA"
The whole thing is extremely irritating. I researched the company backing this mill and they are a Kansas based law firm run by an individual "attorney/accountant" and she has legal credentials. How are they not just getting slammed for fraud.... which is what makes me wonder if I'm missing something.... I certainly don't think I am....[/quote]

These credits will be aggressively audited and many will lose badly. This is the kind of letter that will get every client they touched audited and rightly so.
The wheels of audit turn slowly, but it's going to happen. It has to.
~Captcook
 

#6
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I have handled a couple of these for restaurants. Have also had a few calls recently from clients that have been contacted and told they qualify. It is frustrating dealing with all of this. I'm expecting another call today from a client to discuss, after emailing various times regarding this. We will see how it goes. This particular client did indeed have issues with getting inventory in (retail sales store); however, I do not think the supply chain issue had more than a nominal effect on their business, as their sales for 2021 were about the same as 2019; 2020 however was a great year due to covid (think in terms of outdoor recreational activities). How do you measure "nominal effect"?

Also, I do know from another group that I am in, that audits have already begun on ERC's.
 

#7
juro  
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CaptCook wrote:
These credits will be aggressively audited and many will lose badly. This is the kind of letter that will get every client they touched audited and rightly so.
The wheels of audit turn slowly, but it's going to happen. It has to.


My client has two forgiven PPP loans and also ERC. Double dipping is a relevant point?
Only the Government Mandate Test applies to this client, but as a contractor, they were barely affected.

https://www.irs.gov/newsroom/employers-warned-to-beware-of-third-parties-promoting-improper-employee-retention-credit-claims
Additionally, for any quarter, eligible employers cannot claim the ERC on wages that were reported as payroll costs in obtaining PPP loan forgiveness or that were used to claim certain other tax credits.
Last edited by juro on 1-Dec-2022 12:10pm, edited 1 time in total.
 

#8
IDCPA  
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SlipperyPencil wrote:
IDCPA wrote:(redacted of course).

Why redact the name of the ERTC mill?


Because I'm posting an email I received from a client without permission. Just seemed appropriate to bleach it.
 

#9
JR1  
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These people....

Bob Jennings sent out an email about these mills....
Go Blackhawks! Go Pack Go!
Remembering our son, Ben Jan 22, 1992 to Aug 26, 2011.
For FB'ers: https://www.facebook.com/groups/BenRoberts/
 

#10
IDCPA  
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CaptCook wrote:[quote="IDCPA"
The whole thing is extremely irritating. I researched the company backing this mill and they are a Kansas based law firm run by an individual "attorney/accountant" and she has legal credentials. How are they not just getting slammed for fraud.... which is what makes me wonder if I'm missing something.... I certainly don't think I am....


These credits will be aggressively audited and many will lose badly. This is the kind of letter that will get every client they touched audited and rightly so.
The wheels of audit turn slowly, but it's going to happen. It has to.[/quote]

I sure hope you're right.
 

#11
IDCPA  
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So, I found this article online from a company that apparently does exclusively ERC work, and I was impressed that they actually appear to follow the law:

https://www.ez-erc.com/post/reasons-your-business-may-not-be-eligible-for-the-employer-retention-credit-erc-under-a-supplier-based-partial-suspension-or-osha-position/

I actually forwarded that email to the author, and copied my client. Here is the response I received - it was very helpful to get a concurring opinion from a company that actually assists people with the credit:

Thanks for your note. I would tend to agree with your evaluation here, and yes, the bolded line is clearly outrageous (and also sadly, all too common these days). We do see a reasonable number percentage of similarly profiled retailers qualify, but for very short periods of time in 2020.

The closest guidance you’ll find to your fact pattern are within Examples 1 – 5 on Pages 35 of Notice 2021-20 (https://www.irs.gov/pub/irs-drop/n-21-20.pdf). I think you can probably draw more parallels to Example 5 than you can to Examples 1 – 2 for periods of time the shops were open but subject to 6-feet rules, but you and XXXX know your fact better than I do. Example 3 would apply if the shops were deemed non-essential, but my guess is that wages would be negligible and/or swallowed up by PPP during that time.

At best, XXXX might have a few months of eligibility in March 26, 2020 – May 20, 2020 if the stores were deemed non-essential (I don’t know the Idaho orders that well, but can glean some here: https://www.huschblackwell.com/idaho-st ... 9-guidance). If they were deemed essential during the shutdown period and social distancing truly limited the number of customers and/or employees that could be present in the store, then MAYBE there are some legs, but you’d have an uphill battle on substantiation.
 

#12
sjrcpa  
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You can report that company to the IRS.
To report tax-related illegal activities relating to ERC claims, submit Form 3949-A, Information Referral
From https://www.irs.gov/newsroom/employers- ... dit-claims
 

#13
IDCPA  
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I saw that.... not sure I have it in me to get stitches.... plus if this client ends up doing it (though I don't think they will) after I tell them I can't, I don't want to get them caught up in it.

I do hope they get their comeuppance, but I don't think I can narc.
 


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