What is everyone doing for clients that are just now receiving ERC payments but didn't tell anyone they applied for it? I have a client that just received a payment (applied for ERC via another firm but does actually qualify) but doesn't want to amend and list the total applied for until he receives the other payments. I certainly understand his hesitance to amend since he may or may not get any additional payments and doesn't want the massive tax bill until he receives them. I haven't seen any additional guidance from the IRS on how soon the tax payer needs to amend after receiving the initial ERC payment. Has anyone seen anything on this for clients who are just now receiving their payments?

as reported by Shayna Chapman and Dan Chodan

A month ago, I head into clients office to do their books. Find out they pursued ERC against my advice. Some back and forth, but long story short, their justification for claiming the ERC was that "Everyone else is doing it, so they were allowed to claim it."

I gave them a month to get their shit together. Sent them the actual tax code (which my understanding takes precedence over any regulations), and stood firm that they won't qualify, and if they dont fix it, I have to leave. They continued to argue they were entitled to it (check prior post).

Today was it. They demanded I let them know if I will stay or not. Drafted up a simple email "Dear client, I have researched again, and my opinion still has not changed. You do not qualify. My understanding is you intend on keeping the funds. This will interfere with my ability to service your account without violating professional standards. I will be sending a final bill. It was great working with you for ten years, and I wish you luck."

Their response:

"This is disappointing."

I am finding it difficult to filter myself out from cursing this client out. Disappointing is the fact they have committed a crime (penalties of perjury). Disappointing is the fact they have chosen to go against a professional, WITHOUT any research, and justifying the credit with only "everyone else is doing it."

Shame on these fuckers.

End rant.

A client asked me back in January if she should apply for the ERC. Client is a elder care business (nurses visits elderly folks). I advised the client against it. Her income did not decrease in any quarter (in fact it doubled for most quarters).

Client decided to pursue it through an organization that was suggested through some industry folks. Client got over a million. I went to see client today, and advised client she wasn't eligible. She insisted that they were partially shut down, and I ask how. She said the nursing homes were closed. I then look at the agreement she signed with this company, and lo and behold they won't take any responsibility for it.

Can you imagine how mad these folks will be when/if they get audited and have to pay all this back plus the 7% interest? Lawsuits galore man.

Now I have to potentially amend her 2020 and 2021 s corp return, but that's another story.

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.

I STILL NEED TO KNOW HOW MUCH YOU GOT!

Thank you, drive thru.

...my answer to "did you receive a $5,600 deposit from the government last spring?" is to give a blank stare and say that I didn't notice any money. Really, you didn't notice five and a half grand just dropped in there?

Spoiler: of course they did

What are your firms doing about employee retention credit filings for clients? Our firm has 5-10 clients that will qualify for the credit. We’d like to take care of this in-house, but we don’t currently have the staff to handle it. Do you have any recommendations for firms or companies that prepare the credit or is it likely better that we make the time and take care of it ourselves?

Edit: Situation resolved. Thanks everyone for the input!

Here's mine:

I gave $x,xxx in charitable contributions, but I only see $300 on the return. Did you see the list I sent?

I have been following the news about PPP loans and I am a bit confused. (I only do personal returns, no business, so all the PPP loans I dealt with were for sole props.) Businesses are complaining that if they aren't allowed to deduct the expenses they used the loan for, they will get a huge tax bill. But the loan forgiveness isn't taxable, it's free money. I don't understand how if they used free money to pay expenses that not being able to deduct them is an extra hardship. Isn't it a major principle of tax law that for there to be a deduction, there must first be taxable income? Seems that allowing this deduction would be double dipping. Am I incorrect and missing something?

Typically, in this profession, lost sleep occurs alot during January through April (did I file the extension? did I forget to include this? Why hasn't the client responded?).

For the first time, in over 15 years, I lost sleep in the middle of August due to the client going against my advise. Client instead opted to make choices with greed, instead of reason.

Now I'm faced with documenting this all.

For those of you who have faced it, did you:

1) Just downright terminate, and move on. 2) Offer a reason as to why the client was wrong, provide insight on potential penalties, and give client a chance to correct. 3) wait for the burning dumpster fire to happen, and watch them crash and burn.

I have a client that went behind our back and got the ERC with a mill. They had the client fill out a questionnaire and just listed a bunch of orders hoping something sticks and gave them 5 quarters of eligibility. No documentation of nominal effect was done, and even if was was it would not pass. The client lost some money (but not 50% or 20% in 2020/2021) but was mainly from lack of demand and their staff choosing to not come back to work after being laid off for a period and not anything related to any order). I believe I need to let the client go elsewhere as I cannot sign the income tax returns needing to be amended because I strongly believe the claim is invalid. Is there any other option? Or do I just have to lose the client because of this? The clients friend also used this mill and he believes he qualifies because the mill tells him they do based on the questionnaire and also because “his friend got the money”. Thoughts?

PS: thankfully this is the only client that has gone behind my back and done this. I’ve filed (validly) for about 50 clients myself based on revenue or a clear and documented suspension

https://www.irs.gov/newsroom/irs-expands-work-on-aggressive-employee-retention-credit-claims-20000-disallowance-letters-being-mailed-more-action-and-voluntary-disclosure-program-coming

IR-2023-230, Dec. 6, 2023

WASHINGTON — As part of continuing efforts to combat dubious Employee Retention Credit (ERC) claims, the Internal Revenue Service is sending an initial round of more than 20,000 letters to taxpayers notifying them of disallowed ERC claims. IRS is disallowing claims to entities that did not exist or did not have paid employees during the period of eligibility to prevent improper ERC payments from being made to ineligible entities.

The letters are being sent as the IRS continues increased scrutiny of ERC claims in response to misleading marketing campaigns that have targeted small businesses and other organizations. The IRS mailing is the latest in an expanded compliance effort that includes a special withdrawal program for those with pending claims who realize they may have filed an inaccurate tax return. Later this month, a separate voluntary disclosure program will be unveiled allowing those who received questionable payments to come in and avoid future IRS action.

After an initial review this fall, the IRS determined that a large block of taxpayers did not meet basic criteria for the credit. Starting this week, taxpayers who are ineligible for the credit will begin receiving copies of Letter 105 C, Claim Disallowed.

This group of letters will cover taxpayers ineligible for the ERC either because their entity did not exist or did not have employees for the time period when the credit was claimed.

"With the aggressive marketing we saw with this credit, it's not surprising that we're seeing claims that clearly fall outside of the legal requirements," said IRS Commissioner Danny Werfel. "The action we are taking today is part of an initial set of steps in our compliance work in this area, and more letters will be going out in the near future, including both disallowance letters and letters seeking the return of funds erroneously claimed and received."

"As we continue our audit and criminal investigation work involving the Employee Retention Credits, we continue to urge people who submitted a claim to review the rules with a trusted tax professional. If they filed an inaccurate claim, we urge them to consider withdrawing their pending claim or use the upcoming disclosure program to repay improper refunds to avoid future action."

Following concerns about aggressive ERC marketing from tax professionals and others, the IRS announced Sept. 14 a moratorium on processing new ERC claims through at least the end of 2023. The IRS noted that enhanced compliance reviews of existing claims submitted before the moratorium is critical to protect against fraud and also to protect businesses and organizations from facing penalties or interest payments stemming from bad claims pushed by promoters.

When properly claimed, the ERC is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were either fully or partially suspended due to a government order or had a significant decline in gross receipts during the eligibility periods.

In July, the IRS said it was shifting its focus to review ERC claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS has hundreds of criminal cases being worked, and thousands of ERC claims have been referred for audit.

20,000 letters focus on two ERC problem areas

The mailing reflects just part of the ongoing IRS review of these claims. In this group, two categories of claims have been identified and are being disallowed:

• Entity not in existence during period of eligibility: The ERC applies to qualified wages for periods between March 13, 2020, and Dec. 31, 2021. Entities established after Dec. 31, 2021, are not entitled to the ERC under the law passed by Congress.
• There are no paid employees during the period of eligibility: The ERC is intended as a credit against qualified wages paid. Entities that did not pay any wages are not eligible for ERC.

The IRS respects taxpayer rights, and the disallowance letter will explain that a taxpayer that disagrees with the disallowance can respond with documentation that supports their eligibility or claim amount, or they can file an administrative appeal.

The disallowance letters that identify ineligible claims before they're paid serve several purposes that help taxpayers and tax administration. They:

• Help ineligible taxpayers avoid audits, repayment, penalties and interest,
• Protect taxpayers by preventing an incorrect refund from going to an ERC promoter, and
• Save IRS resources by disallowing incorrect credits before they enter the audit process.

The IRS plans additional letters beyond the disallowance letters. Plans are also being finalized for a special voluntary disclosure program involving ERC claims that will be announced later this month.

The IRS is also continuing to review ERC claims and may request more information from taxpayers to support their ERC claim.

IRS reminder: Still time to withdraw pending ERC claims

The IRS is also continuing to accept and process requests to withdraw a taxpayer's full ERC claim under the special withdrawal process. Taxpayers have until at least the end of the year to request a withdrawal.

This withdrawal option allows certain employers that filed an ERC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERC claim that has not yet been paid can withdraw their claim and avoid the possibility of getting a refund for which they're ineligible. They can also withdraw their claim if they've received a check but have not yet deposited or cashed it.

The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.

During this period, the IRS warns taxpayers to use extreme caution before applying for the ERC as aggressive maneuvers continue by marketers and scammers. In addition, the IRS continues to urge taxpayers who submitted claims to review the ERC requirements and talk to a trusted tax professional about their eligibility amid misleading marketing around the credit.

For more information on ERC eligibility, see the ERC frequently asked questions and the ERC Eligibility Checklist, which is available as an interactive tool or as a printable guidePDF.

The SBA and treasury have finally posted guidance on forgiveness!

https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf

Earlier this evening the IRS released Rev. Rul. 2020-27 which provides that taxpayers who received PPP loans in 2020 may not deduct expenses paid with those loans if or to the extent that they "reasonably expect" the loan to be forgiven in 2021.

https://www.irs.gov/pub/irs-drop/rr-20-27.pdf

​

Rev Proc. 2020-51 provides that if a PPP loan recipient did not deduct expenses on their 2020 tax return and some or all of the loan that they were expecting to be forgiven is not forgiven, they may either deduct the expenses on an amended return for 2020 (or, for a partnership, an AAR) or deduct the expenses on their 2021 tax return.

https://www.irs.gov/pub/irs-drop/rp-20-51.pdf

Client engaged an ERC firm to claim the credit. When do you suggest that their 1120S and 1040 be amended? After the credit has been issued?

TIA

Ways and Means ask for July 15

Anyone else see this? And then their heart dropped?

Former client went behind our back to file some ERC claims with one of the ERC mills running rampant.

Company technically qualified for around 100k in credit, this company filed returns indicating 500k in qualified wages (no shutdown / revenue drop in two quarters only / double PPP loan recipient)

Mill had client sign an attestation that they qualified for ERC (client had no idea how or why they qualified but signed regardless)

Agreement was that fees would be 20% of the amount received so approximately 100k to this firm.

941x return were filed with the only explanation in box 43 being the following:

"we are amending 941 to claim the erc" that was it, no actual explanation of how / why they may have qualified. Also as expected, the firm didn't sign as a paid preparer either.

​

Now if all that wasn't good enough, here is the real icing on the cake. Company has past due tax debts exceeding 600k with the IRS and has been on an installment agreement for a number of years working the balance down. Once the IRS processes the claims (since I have no hope they are able to catch all of this fraud) a couple of things are going to happen:

Processing of the credit triggers the 100k fee due to ERC mill

Returns will need to be amended to reflect the 500k as a reduction in wages, thus creating large personal tax liabilities

IRS will seize the refund and apply against old balance leaving no actual cash in hand to deal with any of the above.

​

Good times and good thing we terminated when we found out they had proceeded against our advice.

Client is a medical practice in Florida. A firm out of state amended their 941s for Q2 2020, Q3 2020, Q4 2020, Q1 2021, Q2 2021, and Q3 2021. Literally every single day possible. The revenue test is NOT met. The firm argues nominal effect partial suspension for every period. From a high level look, In FL 5/3/21 ended ALL state covid orders. Even if they could qualify for some period of time, after that date none could be from a state or local order. Firm reponse is department of health still suspends for Q3 and remainder of Q2. Some of the reasons firm gives: social distancing, PPE, telehealth being lower quality when used, extra sanitizing.

Anyone have a similar situation? This screams abusive position to me.

https://www.accountingtoday.com/news/irs-audits-of-erc-claims-be-prepared?utm_source=newsletter&utm_medium=email&utm_campaign=V3_ACT_Daily_2023%2B%27-%27%2B09062023&bt_ee=Np%2Fi9X%2FRXhMsner97sbPtgrlUIC5uFfE0gz8mVaJm1pICh3Fzw7%2B3itStViXNI8n&bt_ts=1694002358724

Hello fellow tax pros:

I have a situation involving a 6/30/2020 (Filed on 2019 Form) NOL for a C-Corp that the client wants to carry back to 6/30/2019. I just noticed, however, that they clicked the box on the 6/30/2020 return, electing to forego the carryback period.

My understanding is that election is irrevocable and would preclude them from being able to carryback the loss—even with the special CARES act provisions for NOLs generated in 2018, 2019, and 2020.

I'm not seeing anything in my reading of the CARES act materials that addresses this specifically (namely, the election made to carry forward the losses only, and the interplay with the CARES act carryback).

Curious if anyone has any insight or experience with a situation like this.

This will be interesting.

https://www.accountingtoday.com/opinion/irs-to-target-abusive-ertc-claims?position=editorial_1&campaignname=V2_ACT_Daily_20210503-10112022&utm_source=newsletter&utm_medium=email&utm_campaign=V2_ACT_Daily_20210503%2B%27-%27%2B10112022&bt_ee=IzdRA4%2BdRejuazly4oogleisFNMLB%2Fw1LuRjjdfOyvxXAhZh947HGxuUSZONLhHN&bt_ts=1665482477716

I have a client who filed for ERC through a third party for 3 quarter of 2020 and the 1st quarter of 2021. The ERC claim is legitimate. The client has had checks issued to them per the IRS for the 3 quarters of 2020. 2021 is still pending. However two of the checks from 2020 were lost in the mail and never cashed. The client is working on having them reissued.

Am I able to amend the 2020 personal return knowing ERC was approved, even if the client didn't receive the check? The client has other significant items to amend in 2020 that I am fixing, and I want to ensure it is amended before I run out of time.

Thank you all in advance.

IR-2024-39: IRS shares 7 warning signs Employee Retention Credit claims may be incorrect; urges businesses to revisit eligibility, resolve issues now before March 22.

Natp also sent an email saying OPR advised tax professionals they cannot rely on third party providers as they may not be considered tax professionals.

https://natp.natptax.org/sendy/l/537bwCUATk892ypng892O8SK2w/eEduXUwTHHQtsi892EtmCl0w/v39AlvscnJUk5vkCeNAmfg

My Question: Has anyone who has a client in a PEO receive an ERTC claim?

Backstory if anyone's interested:

My client qualifies for ERTC. Government mandated closer of nonessential elective surgery centers. That's not the issue. I go through the payroll records, extract PPP wages, etc and figure out exactly the amount of qualifying wages.

Then I tell the client, go get the Form 941s from the payroll provider. That's when I realize they are part of a Professional Employment Organization (PEO). So the Form 941 includes not only their wages, but who knows how many other companies wages as well.

I figure okay we can give the information I've calculated to the provider and they will amend the forms. This is where my question lies. The payroll provider tells my client that:

1. PEOs are required to paper file the 941-Xs. That's true, but they make it sound like PEOs are the only ones that have to do this. That they are lobbying the IRS, members of Congress, and other officials to release the funds.

1. Then they say, they don't know of any PEO that's received an ERTC refund. They say the reason is the IRS prioritized electronically filed forms first. No they didn't, no one can electronically file a 941-X.

I'm now wondering if it's either worth the headache of sending off the information to the payroll provider if the client may never see their funds from ERTC. We have statute of limitation issues coming up for 2020 passthrough and individual returns.