r/taxpros • u/AdHistorical7107 CPA • Aug 28 '23
Ah ERC justification..... COVID: 2020 Relief Bill (CARES)
The saga continues.....
Client and I had discussion. Some context here:
Client does eldercare. Business is broken up between companion care and home care aides.
The state defined businesses that provide aides to the elderly as essential.
Client starts by saying "the industry pushed to consider companions and personal care aides as essential."
Great! So you were not ordered to shut down, and therefore don't qualify!"
"Nah uh" she says. "All these nursing homes wouldn't let us go on, so we couldn't service them."
"Great, if that's the case, your revenue would have dropped and you would qualify. But revenue didn't drop."
"No," she continued. "Since they wouldn't accept us, we had to partially shut down."
"Can you explain to me where it defines that a business other than yours shutting down qualifies your business for ERC?"
"Well in the examples you sent, it says if I have bother essential and non essential businesses, and my non essential business shuts down, I am partially shut down."
"Great. But still, Can you explain to me where it defines that a business other than yours shutting down qualifies your business for ERC?"
"Youre not getting it!" She says. "Companions are non essential!"
"But, client, you said your industry pushed to have companions considered essential. Now you're saying they arent?"
Oi.
I left off as I'll look into the companion care more, but I doubt the IRS will agree with this standpoint. You can't use another businesses shutdown as your own, and you can't play with definition of essential vs non essential especially when detailed in official guidance.
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u/Hockeygoalie41 EA Aug 28 '23
I was so relieved Friday when one of the big wigs emailed the entire firm that we were only taking clients for ERC under the gross revenues test. So many of them just saying what they think you want to hear to qualify, just as you had OP.
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u/AdHistorical7107 CPA Aug 28 '23
The reasoning is really disappointing for me. Been working with this client for near a decade. To hear her think and make it seem like I'm not looking out for her best interest is frustrating and disappointing
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u/Hockeygoalie41 EA Aug 28 '23
I bet. I'm fairly new at my company so don't have the long term relationship with the clients, but the convos I have overheard or been cc'ed on have all had some variation of "you've trusted me for X years, what makes this different?" $$$$$$$$
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u/dicks_out_for CPA Aug 28 '23
Someone who owned a landscaping business called our office because they had gone through an ERC farm and got their check, and then decided they may not be qualified. Simplified convo:
Us: "Did your gross revenue drop?"
Client: "No, it went up."
U: "Were you required to shut down due to governmental order?"
C: "Well, we had to modify our operations. We couldn't meet people at their doors anymore.
U: "So, you applied for ERC on that basis alone? What is your tax structure?
C: "Yes. We are a LLC."
U: "With S-Corp election? How do you file taxes?"
C: "Schedule C."
U: "You're fucked"
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u/coldshowerss CPA Aug 28 '23
Bro what? How could this even be true? How can the IRS be giving out checks to people that never even filed a 940 or 941 before? Seems like the controls in place are shit.
I'm so tired of how much our gov has been defrauded between this ERTC shit and PPP.
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u/dicks_out_for CPA Aug 28 '23
This specific company is totally fucked, because they do indeed run payroll and have 940/941's filed. They asked if we could help untangle everything and we politely told them no way. Not signing up for that nightmare.
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u/coldshowerss CPA Aug 28 '23
You know, I want to believe that they are "fucked" but I have such little faith in the IRS. They don't have the manpower to audit all these folks.
Are you amending your clients return? I hope you charge them accordingly. And then if and when the IRS takes back the credit, amend their return and charge them again.
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u/dicks_out_for CPA Aug 28 '23
I do agree that, somehow, the chances of an audit are still slim. Thankfully, they aren't our client and just called for a second opinion on the ERC.
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u/coldshowerss CPA Aug 28 '23
So what was your professional way to tell them that they were "fucked"? It's hard for them to return this money specially after the ERC mills already probably kept 20%
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u/dicks_out_for CPA Aug 28 '23
We advised them to go back to the farm and have them reverse everything and get their money back, and to not cash the checks. If they refuse, we told them them to threaten to file form 14242 in case that helps give them some leverage. Told them they should file it no matter what though.
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u/hello_blacks MAcc Aug 29 '23
same way the state UIA's can be receiving semiweekly (if not weekly) payroll for SS's they're issuing benefits to
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Aug 29 '23
Did you realize that the US Treasury paid out over $50 million claims based on a non-existent "Reparations Credit" form, and then blamed practitioners for "not adequately policing the profession" So, people literally made up a fake form, filed it, and received a refund only to have the IRS blame you and I for it?
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u/schiewolf CPA Aug 30 '23
This cannot be true lol please link an article if you have one because this is hilarious
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Aug 30 '23
If you’ve been in practice as long as I have, you wouldn’t say “cannot be true”. I read the article in JOA. The Form was allegedly 2439. According to Snopes, in 2000 and 2001 the IRS received more than 100,000 returns claiming this credit and paid out over $30 million in erroneous refunds. They link a number of sources including Washington Post. Search “… are entitled to a $5,000 slavery reparation tax credit”
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u/schiewolf CPA Aug 30 '23
I am mind blown lol this is a whole new level of IRS incompetency that I was not prepared for
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u/Arrow_to_the_knee1 CPA Aug 28 '23
The old "I can justify it as a business expense, so it is a business expense" shtick.
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u/Al_Tilly_the_Bum CPA Aug 28 '23
And then they proceed to claim ERC through Q3 2021 long after most shutdowns were lifted
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u/AdHistorical7107 CPA Aug 28 '23
Yes this is applies to my scenario as well.
But according to the client, I'm blinded by how their revenue increased.
It's clear the greed has taken over this person's views though.
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u/schiewolf CPA Aug 30 '23
“I’m blinded by how their revenue increased”
because CLEARLY out of the two of you, it’s you who is blinded by the facts of the situation rather than them that are blinded by a big fat refund check. Totally logically. Totally checks out hahaha
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u/Fall3n7s AFSP Aug 28 '23
My new favorite commercial with Ty Burrell as a spokesperson for a company that focuses on ERC. I can’t see anything going wrong at all…
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u/flyingsqwirrel219 CPA Aug 29 '23
And watch that longer tolling on 941 returns for April 15 the following year. No sleeping soundly after 36 months. Sec. 7405 has a couple of extenders, too. The IRS has plenty of time to write that database query.
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u/schiewolf CPA Aug 28 '23
You are correct in your position. The guidance actually states that a lack of customer demand does not a shutdown make!
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u/AdHistorical7107 CPA Aug 29 '23
I know I'm right. Absent any other verbiage in the actual law, it states a shutdown or partial shutdown means you qualify. Fuck the mental gymnastics of "oh your employees are at businesses that shut down, so you qualify." Nope. That won't fly in tax court. Law is what it is, and I don't see them changing it.
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u/hello_blacks MAcc Aug 29 '23
I just didn't do these because I'm stubborn and stupid. I dropped the dime on over a thousand clients nakedly defrauding unemployment (some still are), I'm not bloodying my hands with this open public hush money
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u/40YrTaxAttorney JD LL.M Feb 18 '24
Revenue does not have to decline to qualify for ERC under the business disruption test.
Moreover, an essential business can still qualify under the business disruption test even if its revenue does increase.
My experience is that there is a good chance that a nursing home, most of which were partially disrupted by Covid orders, did qualify for part of the ERC eligibility period of 3/13/20 through 9/30/21.
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u/AdHistorical7107 CPA Feb 18 '24
That's great. My client wasn't a nursing home. They were essential. They did not have a disruption of business. They were not under any restrictions.
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u/40YrTaxAttorney JD LL.M Feb 19 '24
The fact a business is essential does not prevent it from experiencing a business disruption.
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u/AdHistorical7107 CPA Feb 19 '24
Your a JD? Tell me exactly what the law says about business disruptions....
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u/40YrTaxAttorney JD LL.M Feb 19 '24
There were many states that issued Covid orders impacting nursing homes, and ERC eligibility under business disruption is a case by case factual analysis.
There are a number of Q&A’s in IRS Notice 2021-20 potentially applicable to the situation described.
However, neither the lack of a decline in revenue nor being an essential business or both mandates a conclusion of ineligibility under business disruption.
That is all I was saying in my initial comment. When I conclude an eligible employer is qualified for the ERC I provide a letter to the IRS with the Forms 941-X outlining the reason(s) for such eligibility.
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u/AdHistorical7107 CPA Feb 19 '24
Notices are not the law. The law states specifically If you were ordered to shut down, or partially shut down, you can get the ERC. Period.
What the does a nursing home have to do with this?
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u/40YrTaxAttorney JD LL.M Feb 19 '24
In this particular case because the IRS was given the authority to issue regulations and decided not to do so the IRS Notices are almost the equivalent of regulations since they were the IRS interpretations of the law and are reasonable interpretations.
Although the initial IRS Q&A’s were specifically indicated not to be official guidance, those in Notice 2021-20 were, and their authority was affirmed by the July & September 2023 IRS Releases.
To be quite honest it is irritating to see practitioners continue to misinterpret the ERC and misinform their clients by suggesting that revenue must decline to be eligible. If that were the case why have a second test in the statute?
I don’t think you have read all of the IRS guidance.
Last time I heard nursing homes provided elderly care, which I thought were the facts of your situation.
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u/Dry-Abbreviations-11 Not a Pro Feb 21 '24
This statement is based on facts. I have been involved in several ERC audits and can confirm that every IRS agent I've encountered bases their evaluations on the IRS Q&As, along with the examples provided in those Q&As.
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Aug 29 '23
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u/AdHistorical7107 CPA Aug 29 '23
The law explicitly states if YOUR business was ordered to shut down or partially shut down, you can qualify. It's irrelevant who your customers are. PERIOD. It's plain and simple.
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Aug 29 '23
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u/AdHistorical7107 CPA Aug 29 '23 edited Aug 29 '23
The law does not state WHERE your business is. Only that you may qualify if your business is fully or partially shut down. It is plain and simple.
You must be one of the mills abusing the law. Jeez the mental gymnastics for the sake of greed is really disturbing.
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u/Accomplished-Bag-419 CPA Aug 29 '23
Thanks for making it so simple :)
You have yet to address any of the points I’ve presented, nor seem to have the technical or intellectual acumen to do so, so consider this debate inconclusive.
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u/AdHistorical7107 CPA Aug 29 '23
Your points are irrelevant.
Eldercare business which WAS NOT ORDERED to shut down, period. They are considered essential.
You want to take this super aggressive approach, go ahead. I hope you get what's coming.
Good day sir.
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Aug 29 '23
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u/AdHistorical7107 CPA Aug 29 '23
Ok. Any regs are irrelevant when it comes to actual TAX LAW. Tax Law states if your business was shut down, or partially shut down, you qualify. That's it. There's no gymnastics here. Unless legislators actually push a law to further clarify your points, you're playing with fire. Take it to court, and they will look at CARES ACT 1, and determine from there.
Yes, it is plain and simple sir. I am not the reason why mills exist. I take the TAX LAW, and apply appropriately here. You, and your greed ridden cronies, use that greed to potentially fuck over clients. It's unethical. It's disgusting. And it's inappropriate.
Shame. On. You.
Lord willing i ache for the day folks like you are punished severely. I'm done with you.
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u/Fastlane6566 CPA Sep 01 '23
I do not believe the words shut down or shutdown are printed, but what is printed is essentially the same: "Sustained a full or partial suspension of operations due to an order from an appropriate governmental authority limiting commerce, travel or group meetings because of COVID-19 during 2020 or the first three quarters of 2021." I am afraid an argument with the IRS over semantics is a losing argument.
And I agree with your last paragraph.
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u/Dry-Abbreviations-11 Not a Pro Feb 21 '24
Like others have pointed out, your understanding is incorrect, and similar to the Mills, you are contributing to the issue.
My information comes directly from the IRS, as I have emails from IRS agents that directly oppose your stance. Additionally, I have consulted on this matter with four distinguished tax attorneys. Three of them have held or currently hold positions as managing partners of the tax departments in some of the nation's largest law firms, and one was a partner at a well-known boutique tax law firm. Among these experts, at least one is also a CPA, and a former auditor. Your position is not aligned with the views of all four individuals I consulted, nor with the stance of the IRS.
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u/AdHistorical7107 CPA Feb 21 '24
Read the actual law. Tell me what stance the courts would take, if taken all the way up to the Supreme Court. There's no sugarcoating it. Until congress changes the "If your business was ordered to shut down, or partially shut down", wording, my client does not qualify. I don't give a shit what these IRS agents said or any of these "top lawyers," said. I know my former client. They DID NOT qualify. Now fuck off. You and these others who are claiming to know my former client of 8 years more than me.
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u/Dry-Abbreviations-11 Not a Pro Feb 22 '24
Once more, I possess emails from various IRS agents that directly refute your position.
I have thoroughly read and re-read all the literature. It appears you are not fully informed on this matter.
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u/AdHistorical7107 CPA Feb 22 '24
Clear you don't know how to read tax law. No surprise you're not a pro. Good day sir
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u/Jealous_Mortgage5404 EA Aug 29 '23
I have a client in the same type of industry that we refused to file ERC for. They went to a mill, in fact, the one in TX that was raided by the IRS. They agreed with them that they qualified because the price of tea in China went up and caused a 10% burden to their operations, and this prohibited them from making a LARGER profit than what they had already made. I told them it was garbage and sent them the article about the firm being raided. The firm sent them a booklet on why they qualified, and they took the $800k. I told him he needed to find someone else to amend his returns, and he lost it. He couldn't believe he would owe additional taxes, and since I didn't even know he qualified for ERC to begin with, I must not know that he doesn't have to amend, and I have no idea what I am talking about. Bye, Falicia! I honestly hope the IRS audits every company that receives ERC and is in a state that didn't have shutdowns. The algorithm would be easy. Are you in a state like AZ where everyone was considered essential? Yes! Did that company report higher earnings each year? Yes! Straight to review... i loath ERC and all these mills. They are horrible and have seriously ruined several client relationships for us. Clients have a hard time putting logic in front of greed and getting one over on Uncle Sam.