The ERC (Employee Retention Credit) was designed to reward employers who retained employees during covid shut down days and/or revenue damages during that same time frame. It comes by applying for the credit on a business tax return or in arrears using form 941-x.
At the time of this programs announcement, I determined that it would likely be rife with fraud due to the temptation of “free” money so I opted out of becoming a participating Accountant. I did however, make referrals for those of my clients wanting to peruse the ERC. I did some investigation and referred to Innovation Refunds. They were aggressively seeking businesses to apply and had no up front cost. The back end payment was 25% but the work involved can be substantial and I saw that as high but perhaps fair in light of the speed needed to get it done in a timely manner.
The IRS warns about companies offering ERC services who take a cut of the refunds. It is not illegal but also not a normal accounting fee. Had I been doing 941X returns there would be no percentage due but rather a flat fee. That is the more typical billing scheme.
The potential for free cash always brings out the worse in people, both those wanting it and those saying they can help get it. I watched the process for my clients and it appeared through. I also counted on the final word for qualifications being met to come from the IRS when processing ERC claims. But it is important to remember, that all tax returns are accepted on the filers sworn statement that the info provided is under oath and subject to perjury. Gulp! That sounds so threatening doesn't it!
My concern for my clients who did apply for the ERC and others is that when receiving their refund, they will ignore or forget about the necessary changes to the payroll tax deductions taken in the same periods. These require an amended tax return for the applicable years. I would like to see more statements about that being made by ERC providers but Accountant/Preparers also bear some responsibility to see that these amendments get done. For entices issuing K-1s this will daisy chain to their 1040s as well. Each amended return will have a prep expense so in effect that administrative work will reduce the cash benefits of the ERC refund. However, it does not appear that it will be significant in relation the fairly sizable refunds I have witnessed.
The ERC is a good thing for those who genuinely qualify. The caveat here is that Amended Corporate, or 1065 tax returns are going to be needed so remain aware of that and the down steam consequences to K-1s and thereby owner's 1040s.
I am being proactive on this subject with my own clients who received ERC refunds. Those of you reading this who are not a client, be advised.
If you need help preparing and filing any amended returns, I am making a one time change to my policy f doing tax prep for clients only and will consider non-clients. Email your situation and we will discuss it further.
Best,
Donn Marier
DM-Your Own CFO