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What's Going on With ERC?!?!?

Sep 26, 2023

Here is what is happening with the ERC credit.

Within the last few months, fraudulent companies have been sending out letters to most businesses telling them they qualify for the credit when they haven’t even looked at your business records to determine your eligibility. They then collect large fees for preparation of the 941 amended returns for you to sign and mail even though you may not qualify. The unsuspecting IRS had been refunding the credits to the businesses even though they did not qualify.

But, they got wise. They have put a moratorium on the continued processing of these 941 amended returns and will audit the ones that they believe are fraudulent. They are also reviewing many previous submissions.

If you have been the victim of one of these fraudulent schemes, you will have to pay back the credit refund you received plus interest and penalty. When you go back to the fraudulent preparer to discuss the IRS contact, they may be gone, as these fraudsters are often fly-by-night operations. As an added bonus, there is a good chance that IRS will be scrutinizing your future returns.

Just what is the big fuss over the ERC? It is a credit that is available on 941 payroll tax deposits that businesses paid on qualified employees. The credit can be so large as to reduce the quarterly 941 payroll tax liability to zero and even give you a substantial refund for each qualifying quarter. Your business has to have been in existence prior to the pandemic, though there is an exception for qualified recovery startup businesses. There are conditions.

First of all, you must have employees. You can’t qualify if you’re a sole proprietor without employees. The ERC is available for sole proprietors, corporations, partnerships, and LLCs on their 941 payroll tax. Throughout the past three years, we have reviewed the clients that we do bookkeeping and payroll for and prepared the necessary reports for them to file and receive their refunds, when they qualified for it. We feel confident that we have not overlooked anyone.

Secondly, you must determine what your quarterly sales totals were for the 1st, 2nd, 3rd,and 4th quarters of 2019, 2020, and 2021. If there was a reduction in sales of 50% or more in any of the quarters for 2020 compared to the same quarter in 2019, then that quarter is eligible for the credit.

For 2021, the reduction in sales is 20% or more when compared to the same quarter in 2019. However, there is an alternate method for 2021. You can also compare the quarter to the previous quarter.

Thirdly, the credit is limited to 50% of the first $10,000 wages paid per employee wage total paid in 2020 for the year. For 2021, the credit is limited to 50% of the first $10,000 wages paid per employee per quarter. Also, the credit is not available for officers or owners of the business that own more than 50% of the business. Additionally, you can’t use the same wages for employees that were used for the payroll protection program (PPP) forgiveness. In other words, no double dipping. The IRS doesn’t like that.

Fourthly, a second way of qualifying is that the credit can be available to restaurants, bars and other businesses that experienced partial shutdown orders by the government due to Covid 19. Because of the government order, they do not have to meet the sales reduction percentage method of qualifying. The shutdowns must have been the result of mandated orders from Louisiana Governor Edwards, Department of Health and Human Resources, Mayor Cantrell of New Orleans, or the parish presidents of other outside parishes from New Orleans. As you recall, many restaurants would not let you into the facility and only take out food was available to order. This was the result of the mandated partial shutdown orders.

Finally, you must have proof of the above if you think you qualify. Do not waste your time or ours if you do not qualify, as the IRS has stopped processing the amended 941 ERC claims till the end of the year due to fraudulent companies submitting the claims. The IRS has identified many fraudulent company claims and is auditing their forms. They are finding that many businesses do not qualify for the credit. That means they could contact you if you submitted a fraudulent claim.

IRS will restart processing submissions in January 2024, but only from reputable preparers whom they know, such as us. If you think you qualify, gather your information and check it out before doing an amended 941 return. If you prefer we do it, contact us now and give us accurate information. The amended 941 tax return can be quite complex, so call us for an appointment at 504-443-3557, if you believe you qualify. We will gladly review the information and complete the amended returns within a couple of weeks for you. Don’t wait too long---deadline for 2020 claims is 4/15/2024.

Category: Taxes