When the ERC came into vogue, I opted out knowing it would be filled with fraud and subsequent increased audits. That was a prescient decision.
The requirement that companies who received ERCs must file mended tax returns whether 1120, 1120S or others has become more promoted by the IRS. Plus changes in K-1s requires owner/shareholders to file amended 1040s.
ERC reduces the WAGE deduction on previously filed ERC years so amending them will increase profits and that include flow through profits to ownership.
My first amended 1120S had a big jump in profit and sent an amended K-1 that was $150K higher in Ordinary Income passed through to the owner's 1040. That's a big tax bill and in large part is a surprise to most ERC recipients. When accounting for 3rd party accountant 941X prep fees which are routinely a percentage of the ERC and now this amended return tax bill, one can wonder if it was worthwhile especially in view of the anticipated high audit rates to follow.
I can only estimate at present, but I suspect that out of every $100K of ERC received half will go toward prep fees and new taxes. I suppose keeping half is not a bad thing, but the rub will be found in those who went through their ERC cash and now have to find new money to pay the “surprise” tax bills. I can see trouble down the line and highly recommend getting this under control now. With credit tightening and a recession still looming with continuing high interest rates, small businesses will struggle to find the needed funds. and the Bankruptcies will keep on a comin'. In addition to all of those ads promoting ERC services etc., I think the IRS should run a Public Service Announcement about the potential amended tax that will be due. That's a big camouflaged hole many will fall into.
Good luck to All.
Best,
Donn Marier
DM-Your Own CFO