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Employee Retention Credit: Too Good to Be True?

The Employee Retention Credit – It’s not too late!There has been no shortage of articles recently about the woes of the IRS. Whether it’s delays, lost returns, incorrect notices, short staffing, or the hiring of 80,000 agents, the IRS is rarely painted in a flattering light.

Just this week though, there have been a few high-profile articles that shine a light on what the IRS has been dealing with, and why hiring more agents may not be the worst thing in the world.

Employee Retention Credit

First, some background information – It seems impossible to turn on the radio without hearing someone stating, “If your business survived COVID, than you’re eligible for $26,000 per employee.” They go on to further explain how there’s no risk, and how they only get paid when you get paid. What they don’t mention is they may not be around in two years when the IRS gets around to auditing your ERC claim. Following along these lines and without a doubt, my favorite is the suspicious letter that we recently received at M&A with the bold “UNDERSTANDING YOUR AVAILABLE TAX CREDIT FUNDS” emblazoned across the top. According to this, our organization is eligible for $2.6 million in ERC credits. Here’s the thing … we’re not. How do I know this? I read the rules.

It does appear that the riskier side of this is starting to make its way into the headlines. Accounting Today is calling this a $2,000,000,000,000 (that’s trillion, I think) fraud. There are quite literally hundreds of firms out there who will gladly take your information and drop it into a boiler plate memo that talks about partial shutdowns and supply chain disruptions. The problem is, the memos that I’ve seen are short on specifics. Unless the memo documents the specific governmental mandate that shutdown (at least a portion of) your business directly, or shutdown one of your main suppliers, you most likely have a bad set of facts. As if that weren’t enough, one calculation I saw referenced a very vague governmental mandate (that didn’t even really apply to the client) in 2020, yet the credit they calculated used 9 months’ worth of wages in 2021. The wages and the shutdown must have occurred at the same time … I know … details.

So buyer beware. If it sounds too good to be true, it probably is. If you have questions though, please contact us or your tax advisor (if it’s not us). They have your best interests in mind and will guide you through everything.

Finally, not to be outdone by the ERC, PPP loans came back up in the conversation too last week. The IRS felt the need to remind us that improperly forgiven PPP loans are NOT excludable from income. So even if you received forgiveness from the SBA, if you didn’t qualify for forgiveness (either intentionally or honest mistake), those funds are taxable unless you set up a plan to convert it to a loan.

If you have any questions about the Employee Retention Credit and PPP Loans, McKonly & Asbury’s experienced professionals are here to help. Please contact us  or visit our website to find out more about our Tax Services.

About the Author

Mark Heath

Mark is a Partner with McKonly & Asbury. Serving as Director of Tax Services, he brings a wealth of experience in federal, state, and international income as well as franchise tax issues for both publicly and privately held corporatio… Read more

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